The TFSA is a great option for investors to build a portfolio of top dividend stocks to generate steady, tax-free, passive income.
Manulife Financial
Manulife (TSX: MFC)(NYSE: MFC) is a leading insurance, wealth management, and asset management company based in Canada with operations that also serve clients in the United States, Europe, and Asia.
The company took a big hit during the Great Recession and was forced to cut its dividend by 50% to preserve cash and protect the balance sheet. Management has spent the past decade removing risks from the business, and that helped Manulife get though 2020 in decent shape.
The board started raising the dividend a few years ago and just increased the payout by another 18% for 2022. The new annualized distribution of $1.32 provides a yield of 5.3% at the current share price near $25.
Manulife should benefit from interest rate hikes that are expected to begin next year, and its Asia operations hold attractive long-term growth potential.
The stock is off the 2021 high around $27.50, so investors have a chance to buy Manulife on a pullback and secure a solid dividend yield.
Suncor
Suncor (TSX: SU)(NYSE: SU) reported strong earnings results for Q3 2021, and the party looks set to continue as we head into 2022. WTI oil is above US$80 per barrel compared to below US$40 a year ago. At the same time, Suncor’s downstream refining and retail operations are back on track as fuel demand rebounds.
Suncor cut its dividend by 55% in the early part of the pandemic, as oil prices tanked and uncertainty loomed around how long lockdowns would last. The rebound in the price of oil in 2021 surprised most analysts and quickly filled Suncor’s coffers with cash.
The company has used the excess funds to reduce debt to a level it had hoped to hit by 2025. In addition, Suncor is buying back up to 7% of its outstanding common stock under the current share-repurchase program. The board sees the good times rolling along for quite a while and recently increased the dividend by 100%, bringing the payout back to the 2019 level.
The stock rallied on the dividend news but still appears undervalued. Investors who buy Suncor at the current price of $32.30 can pick up a 5.2% dividend yield.
Pembina Pipeline
Pembina Pipeline (TSX: PPL)(NYSE: PBA) provides oil and gas producers with a wide variety of services that includes pipelines, natural gas gathering and processing, and logistics. The company also has a propane export terminal and is evaluating new investments in carbon sequestration and liquified natural gas (LNG) exports.
Management moved quickly in the early part of the pandemic to shore up the balance sheet. The company also deferred some capital projects. Now that the energy sector is getting back on its feet, Pembina Pipeline is restarting some developments and should benefit from rising oil, natural gas, and gas liquids demand.
The stock trades near its high for the year, but still looks cheap. Investors who buy now can get an annualized 6% dividend yield. Pembina Pipeline pays its dividend monthly.
The bottom line on top stocks for passive income
Manulife, Suncor, and Pembina Pipeline are all leaders in their respective industries. The stocks pay attractive dividends that offer above-average yields, and the shares look cheap at current levels. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your buy list.
