TFSA Investors: Should You Buy Fortis (TSX:FTS) or Toronto-Dominion Bank (TSX:TD) for Dividend Income?

There are many good reasons for TFSA investors to buy both Fortis stock and TD Bank stock, but this Motley Fool article will focus on the dividends.

| More on:
Growing plant shoots on coins

Image source: Getty Images

Dividend stocks are the anchors to a TFSA portfolio. That’s no surprise, as they provide very valuable tax-free income. This income can serve to supplement employment income or as part of a retiree’s retirement income. Top dividend stocks, like Fortis (TSX:FTS)(NYSE:FTS) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) also provide predictability and long-term wealth creation.

If you’re looking for meaningful dividend income, rest assured. At Motley Fool, we are looking for the same thing. Without further ado, let’s uncover the better stock to buy for your TFSA.

Fortis stock: Providing steady dividend income for decades

Fortis is a North American leader in the regulated gas and electric utility industry. A key benefit of this industry is that it is regulated. For Fortis, this means that the vast majority of its revenue is stable, predictable, and highly visible. It is what has enabled the company to remain highly reliable for its investors.

The reliability has come through in many ways, including the company’s long history of dividend increases. In fact, Fortis has 46 years of consecutive dividend increases under its belt. The company remains committed to an average annual dividend growth guidance of 6% until 2024. Today, Fortis provides TFSA investors with a tax-free 3.57% dividend yield.

Fortis is the company that keeps the lights on and the heat on. It keeps us connected around the world, powering our laptops and televisions. It is no wonder that this stock has been an anchor for TFSA investors. Looking ahead, I would definitely recommend Fortis for any TFSA portfolio. It will reward you with an invaluable dividend income stream for years to come.

As you can see, Fortis is certainly a stellar stock pick for dividend income. Here at Motley Fool, we have often highlighted Fortis’s value for TFSA investors.

Toronto-Dominion Bank stock: Providing a generous 5% yield for TFSA investors today

Toronto-Dominion Bank is Canada’s second-largest bank. It is a top-quality franchise that benefits from a diversified business mix and North American scale. This is all underpinned by a strong risk culture and its industry-leading return on equity (ROE).

But TD Bank is not as predictable and stable as Fortis. Banks are the pulse of an economy. Therefore, they are vulnerable to economic shifts. So far in this COVID-19 crisis, Toronto-Dominion Bank has recorded massive provisions for credit losses. Canadian banks are facing the real possibility of mounting credit losses. The effects of the COVID-19 pandemic and the resulting shutdowns will be huge.

But that’s okay, because there is upside to this. Today, TFSA investors are compensated for this added volatility and risk. TD Bank’s 5% dividend yield reflects these risks and is a reward for investors. TD Bank stock is offering strong value at these levels.

Toronto-Dominion Bank stock is trading approximately 17% lower than pre-crisis levels. This reflects the financial hit that the bank is taking. But it also reflects the confidence that investors have in the bank. Significant unemployment and credit issues have only just begun to hit the Canadian economy. Toronto-Dominion Bank will hold its own through this crisis, as it has done in past crisis.

Motley Fool: The bottom line

The bottom line here is that both of these stocks are great additions to your TFSA. Fortis stock is a great addition for its smooth and steady dividend. And Toronto-Dominion Bank stock is a great addition for its crisis-level yield and valuation. Both will survive and both will create long-term wealth for TFSA investors.

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.

Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.

More on Dividend Stocks

Dividend Stocks

3 Expensive TSX Stocks I’d Buy if They Took a Dip

Three relatively expensive large-cap stocks are on my buy list if their prices dip in the next market correction.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How I’d Invest $1,000 in October to Generate Passive Income for Life

You can earn reliable passive income each year by investing $1,000 in this Canadian dividend stock right now.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

TFSA: Invest $45,000 in These 3 Stocks and Get $2,392 in Passive Income

Here are three of the best Canadian dividend stocks TFSA investors can consider buying right now to earn handsome passive…

Read more »

Modern buildings in business district
Dividend Stocks

3 REITs Offer a Good Mix of Growth Potential and Dividends

The real estate sector in Canada is still heading downwards, and the stocks are mimicking the pattern, so you can…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

2 of the Best Dividend Stocks to Buy for Growing Passive Income

If you're building a long-term portfolio, these two dividend stocks are some of the best investments to buy for growing…

Read more »

edit Woman calculating figures next to a laptop
Dividend Stocks

Create $500 in Tax-Free Passive Income With $0 in the Bank

Even if you don't have a cent to invest, you can start creating passive income to allow you to create…

Read more »

Dividend Stocks

Passive Income: 2 Dependable Dividend Stocks to Buy Today and Own Forever

Now’s a great time to think about building a passive-income stream. Here are two dividend stocks to have on your…

Read more »

Dividend Stocks

3 Dirt-Cheap TSX Stocks (With +5% Yields) to Buy Right Now

Here are three dirt-cheap TSX stocks that trade with elevated dividend yields and solid growth prospects ahead.

Read more »