2 Top Dividend Stocks Yielding 6% to Buy With a $6,000 TFSA Contribution

These two top Canadian dividend stocks appear cheap today and offer 6% yields for a TFSA portfolio.

| More on:
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT

Image source: Getty Images

Canadian savers want to get the best return possible on their TFSA investments.

TFSA advantage

The TFSA is a great tool for investors of all ages. Anyone resident who is at least 18 years old has TFSA contribution space. The TFSA limit increased by $6,000 in 2020, and the maximum cumulative amount is now $69,500.

Younger investors often set aside the limit each year to make the contribution as part of a long-term savings goal. When investors buy top dividend stocks and use the distributions to acquire more shares, they harness the power of compounding. This can turn small initial investments into a large retirement fund over time.

Older investors, including retirees, might use the TFSA to generate tax-free income. Rather than using dividends to buy new shares, the distributions are removed to supplement other pension income, including CPP and OAS. Interestingly, the CRA does not count TFSA earnings towards the personal income calculation used to determine OAS clawbacks.

Let’s take a look at two Canadian dividend stocks that appear cheap right now and should be solid picks for a TFSA portfolio.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is Canada’s third-largest bank by market capitalization. The stock is down from $74 in February to $55 at the time of writing. This puts the current dividend yield at 6.5%.

The pandemic lockdowns forced thousands of Canadian businesses to close, resulting in an unprecedented wave of layoffs. Official unemployment hit 13% in April, and economists have different views on how quickly the job market will recover.

The banks set aside large provisions for credit losses in the last round of results. A V-shaped recovery could result in lower-than-expected losses. A slow recovery that sees unemployment remain elevated through the end of 2021 would likely push loan defaults higher.

The near-term outlook remains uncertain, but Bank of Nova Scotia survived every other major financial crisis in the past century and is still very profitable. The bank has a strong capital position, and the dividend should be safe.

Investors who buy now can pick up a great yield and have a shot at attractive capital gains.

BCE

BCE (TSX:BCE)(NYSE:BCE) is Canada’s largest communications firm. The company operates world-class wireless and wireline networks across the country. BCE also has a media division that includes a television network, sports teams, radio stations. In addition, BCE sells a variety of products through its retail operations.

Sports teams and stores took a beating in the second quarter. It will take some time for the operations to get back to normal. However, BCE gets most its revenue from the core network operations. Mobile and internet data demand is up considerably due to the lockdowns. BCE allowed unlimited internet use through the end of Q2 but ended the provision at the beginning of July. The Q3 results might show a surge of plan upgrades as a result.

The stock trades near $56 compared to a 12-month high of $65. Investors who start a position today can pick up a 6% yield.

The bottom line

Bank of Nova Scotia and BCE are top-quality companies with long track records of dividend growth. The stocks appear somewhat oversold today and pay great dividends. If you are searching for top TFSA picks for your dividend fund, these stocks deserve to be on your radar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Andrew Walker owns shares of BCE.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »