Retirees: 2 Top Canadian Stocks to Buy Today for TFSA Passive Income

These two stocks pay attractive dividends that should increase steadily in the next few years.

| More on:

Image source: Getty Images

Retirees are using their Tax-Free Savings Account (TFSA) to generate tax-free passive income from top Canadian dividend stocks.


Fortis (TSX:FTS)(NYSE:FTS) trades near $56 per share at the time of writing compared to the 2021 high above $59. The dip gives investors a chance to pick up a solid 3.8% yield and wait for the steady stream of dividend increases that are on the way in the next few years.

Fortis is working on a $20 billion capital program that will drive 6% per year growth in the rate base through 2026. As a result, the board intends to raise the dividend by an average annual rate of 6% through at least 2025. Fortis has increased the distribution for 48 straight years, so investors should feel comfortable with the guidance.

The company has identified a number of projects that could get added to the development portfolio. Fortis also has a strong track record of making successful strategic acquisitions. The last large deal occurred in 2016, so it wouldn’t be a surprise to see another purchase materialize in the next couple of years. If that happens, dividend growth could expand by more than the current forecast.

This is a good stock to own for reliable passive income. Revenue primarily comes from regulated assets. Fortis operates utilities that provide essential services such as electricity and natural gas.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has a market capitalization of $100 billion. This makes it Canada’s third-largest bank based on that metric. Its size gives the bank the means to make strategic acquisitions when opportunities arise and help the Bank of Nova Scotia ride out challenging times, as we saw in the past two years.

Bank of Nova Scotia differs from its peers due to the large international business focused on Latin America. The bank has significant operations in Mexico, Peru, Chile, and Colombia. The pandemic hit these countries hard and it will be some time before the recovery catches up with the rebound we are seeing in Canada.

However, the international group remains quite profitable and holds attractive long-term growth potential. The four countries form the core of the Pacific Alliance trade bloc and are home to more than 230 million people. Bank penetration remains very low, so there are good opportunities to capitalize on rising loan demand as the middle class expands.

Oil and copper production is important for these countries. Prices have already soared off the 2020 lows and are expected to remain high for the next few years.

Bank of Nova Scotia trades at a reasonable 11.6 times trailing 12-month earnings. The company is sitting on excess cash it built up to cover potential loan losses during the pandemic. Some pain is likely still on the way now that government aid programs in Canada are ending, but the bulk of the risk should be in the rearview mirror.

In fact, the government is comfortable enough with the outlook for the Canadian banks that it recently lifted the ban on dividend increases. Bank of Nova Scotia will likely give investors a big raise when it reports fiscal Q4 2021 earnings results on November 30. A dividend increase of 20% for 2022 is certainly possible based on the increases we have already seen from some of the insurance companies.

Investors who buy today can pick up a 4.3% dividend yield.

The bottom line on top stocks for TFSA passive income

Fortis and Bank of Nova Scotia are top-quality companies that should deliver solid dividend growth in the coming years. If you have some cash to put to work in a TFSA focused on passive income, 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 and FORTIS INC. Fool contributor Andrew Walker owns shares of Fortis.

More on Investing

Canadian stocks are rising
Dividend Stocks

1 Dividend-Growth Stock You Won’t Want to Miss in the Real Estate Sector

A growth-oriented REIT is a strong buy today after raising its dividend by more than 5% in each of the…

Read more »

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

Retirement Investors: 3 TSX Stocks That Could Rally With the Economy 

Always buy stocks you are bullish on when they trade below their 52-week highs. A recovery rally can enhance your…

Read more »

some canadian stocks rose

3 Stocks I’ll Load Up on in 2023

Toronto-Dominion Bank (TSX:TD) is one stock I'll load up on in 2023. There are others, too.

Read more »

Dividend Stocks

Better Buy: Emera Stock vs. Hydro One

Higher-risk utility Emera should provide higher returns over the next five years, given the dip and its higher yield.

Read more »

Growing plant shoots on coins
Tech Stocks

3 Growth Stocks That Look Ready to Double in 1 Year

These three growth stocks are "sleeping giants" ready to blast off in 2023 and beyond for investors who pick them…

Read more »

Payday ringed on a calendar
Dividend Stocks

Passive-Income Hat Trick: 3 TSX Stocks to Buy for Monthly Cash

Investors seeking passive income can invest in these Canadian dividend stocks and earn attractive monthly passive income.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Get Passive Income of $435/Month With This TSX Stock

Here’s how dividend investing in Canada could help you get reliable monthly passive income.

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

2 Undervalued Growth Stocks to Buy Right Now

Once a growth stock becomes too heavily discounted or undervalued, investors begin to wonder about its ability to bounce back,…

Read more »