With stock markets taking a significant hit this week, it is a great time for TFSA (Tax-Free Savings Account) investors to lock in some high-quality dividend stocks. When investing in your TFSA, investors have to take note of one important thing. The TFSA protects your investments from tax implications (including capital gains, interest, or income earned), so you cannot claim your capital losses against gains in non-registered accounts. Therefore, investors ought to build a TFSA portfolio that achieves the best risk-adjusted returns.
That means you want TFSA stocks that have a history of consistent cash flow/earnings growth, cash rich balance sheets, a low dividend-payout ratio, and a nice overall return profile (a mix of dividend income and capital gains). Considering these criteria, check out these top TSX dividend stocks that could be great fits for your TFSA today.
Brookfield Infrastructure Partners: A perfect TFSA stock
One perfect TFSA stock is Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP). While BIP has had a strong 81% recovery since March, it is still trading about 25% below its highs in February. The stock is paying an attractive 4.2% dividend. Its dividend payout is only 85% of funds flow from operations, so it still has room to reinvest in the business. Since 2009, BIP has grown its cash flows (fund flows from operations) by a CAGR of 15% and its dividend per unit by a CAGR of 11%.
Its consistent, resilient cash flows make it a great TFSA stock. Its portfolio is composed of essential infrastructure assets like electric/gas transmission lines, midstream services, toll roads and ports, and data/cellular infrastructure. Over 85% of its assets are contracted or regulated, so its cash flows are very stable and predictable.
The stock has ample opportunity for growth, both from a strong internal development pipeline and from acquisitions. I believe BIP will take advantage of the challenged economic environment and nab some bargain asset deals in the next year or so. Management has titled BIP a “growtility,” and I think that makes it a great TFSA stock.
Telus: A safety stock with growth ahead
Telus (TSX:T)(NYSE:TU) is another great value stock to add into your TFSA portfolio. This stock is trading with a solid 4.9% dividend. It also has a reasonably attractive price to cash flow of only seven times.
Despite the pandemic, Telus stock has begun to show some momentum, recovering from the March market crash. As volatility increases over the fall, investors may continue to seek refuge in staple stocks like telecoms. I think this could catalyze strength in the stock in the rest of the year.
Telus has been doing a lot of things right, and that makes it a great TFSA stock. Rather than invest in costly media businesses, it invested heavily into its fibre and mobile infrastructure. Consequently, it has been named the best phone and internet carrier in terms of speed and quality. Since much of its wireline and wireless businesses will only see stalwart growth (perhaps boosted by 5G integration), Telus wisely invested in a number of digital growth verticals.
Telus Health is Canada’s largest digital health services providers. Telus International provides digital customer interaction and IT services. Management has indicated that both of these could have spin-off potential. Telus also has digital services for agriculture and security.
The fact is, Telus is steadily becoming an integrated digital services leader in Canada and the world. While these verticals are small, they should benefit from the increasing trend toward digitization of all things. Considering Telus’s balance sheet, growing dividends, and potential upside through spinoffs, it is a perfect fit for any investor’s TFSA portfolio.
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Fool contributor Robin Brown owns shares of Brookfield Infrastructure Partners. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS and Brookfield Infrastructure Partners.