1 Top High-Yield Dividend Stock for TFSA Income

Retirees can use the TFSA to boost income without worrying about the OAS clawback. Here’s one top dividend stock to buy today.

| More on:
Increasing yield

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Canadian retirees and other income investors are using their TFSA to hold top dividend stocks as part of their overall pension income strategy.

TFSA benefits

Retirees who received Old Age Security (OAS) pensions should consider maxing out their TFSA contribution room before holding stocks in a taxable account.

All interest, dividends, and capital gains generated inside the TFSA are not taxable. This means the earnings don’t bump you into a higher marginal tax bracket. It also means the CRA won’t include the earnings in the net world income calculation used to determine the OAS pension recovery tax, also known as the OAS clawback.

Dividends earned inside a taxable account can really cause grief for retirees. The CRA uses the 38% dividend gross-up amount on these payouts when determining net world income. So, $1,000 in dividends paid out in a taxable account would be considered $1,380 in annual income.

Retirees who are near or over the minimum income threshold for the OAS clawback can take a big hit. The number to watch for the 2021 income year is $79,845. This isn’t hard to reach if you have a good company pension in addition to OAS, RRIF payments, and other taxable income.

Top TFSA income stocks

Retirees have up to $75,500 in TFSA contribution room in 2021. That’s a lot of space that can generate decent dividend income from quality high-yield stocks. Owning stocks carries risk, so it makes sense to search for top companies with long track records of dividend growth. Businesses with wide moats are desirable, and it helps if the companies provide essential services or products.

TC Energy

TC Energy (TSX:TRP)(NYSE:TRP) is a leader in the North American natural gas transmission industry with assets located in Canada, the United States, and Mexico. The company also has power-generation facilities.

Natural gas is abundant in Canada and the United States and can be produced at low costs. When burned, the fuel produces less greenhouse gas than coal or oil, making natural gas an important fuel for power production in the coming years as the world transitions to renewable energy.

Millions of homes and businesses use natural gas to heat water and keep the building warm. Gas-fired appliances are also popular, especially in areas when electricity prices are extremely high.

The global market for liquified natural gas (LNG) is expanding, and TC Energy has the infrastructure in place to help producers get their gas to LNG terminals. TC Energy is also investing in carbon sequestration assets to help energy companies reach their ESG objectives.

Management has a $20 billion secured capital program on the go that should support annual dividend increases of 5-7% over the medium term. TC Energy’s current distribution provides a 5.5% yield. The stock trades near $62 per share at the time of writing. That’s down from $75 before the pandemic, so there should be some decent upside opportunity.

The bottom line for TFSA income

The TFSA is a great investment tool for pensioners who want to get extra income from their savings without worrying about being pushed into a higher tax bracket or getting hit with the OAS clawback.

TC Energy is one top dividend stock on the TSX Index that offers an above-average yield and should deliver attractive long-term returns 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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Andrew Walker owns shares of TC Energy.

More on Dividend Stocks

calculate and analyze stock
Dividend Stocks

2 TSX Stocks to Buy With Dividends Yielding More Than 3%

Are you looking for some great income stocks that can provide growth, too? Here are two stellar TSX stocks to…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Dividend Lovers: 3 U.S. Stocks You Haven’t Heard About

Don't just stick to Canadian companies for a great dividend, consider these U.S. stocks you probably haven't even heard of.

Read more »

money cash dividends
Dividend Stocks

How to Invest $10,000 Over the Next 5 Years

Those looking to put $10,000 to work in this rather uncertain and volatile market may want to consider these three…

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: 2 Incredible Deals to Buy in August

Here are two TSX stocks investors can consider for their TFSA contribution this year.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

These 3 TSX Stocks Have Doubled Over 3 Years: Can They Do It Again?

Three TSX stocks whose share prices have doubled in three years are well-positioned to repeat history and reward investors with…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

Smart Buys: 2 Low-Profile Value Stocks With Strong Upside

Two low-profile value stocks with strong upside are smart buys if you’re looking for investments outside the energy sector.

Read more »

Dividend Stocks

TFSA Growth: 3 Safe Dividend Stocks to Turn $30K Into $2.5 Million by Retirement

Here’s how Motley Fool investors can use their TFSA to create wealth for retirement, all from safe TSX dividend stocks.

Read more »

A plant grows from coins.
Dividend Stocks

2 TSX Stocks That Could Grow Your Portfolio Over the Next Decade

These two TSX stocks have a strong history of growth and increasing dividends.

Read more »