2 Solid TSX Dividend Stocks for New TFSA Investors

The recent market pullback is giving TFSA income investors a chance to buy top dividend stocks at attractive prices.

| More on:
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT

Image source: Getty Images

Canadian investors are taking advantage of their growing TFSA contribution limits to build portfolios of top TSX dividends stocks that generate attractive tax-free passive income.

TFSA benefits

The government launched the TFSA in 2009 to give Canadians another savings vehicle to go along with the RRSP. Since inception, the TFSA limit has increased every year and is now at a maximum of $81,500 per person.

All earnings generated inside the TFSA remains beyond the reach of the CRA. Withdrawals do not get added to net world income, so investors won’t be bumped into a higher tax bracket. In addition, the CRA does not include TFSA income in its calculation to determine the Old Age Security pension recovery tax, often called the OAS clawback.

Funds removed from the TFSA open up new contribution space in the next calendar year. This is helpful for people who might need to access the TFSA cash for a purchase or to cover an emergency, but want to catch up the TFSA investment down the road.

Let’s take a look at two top TSX dividend stocks that might be good to buy right now for a TFSA focused on passive income.

Fortis

Fortis (TSX:FTS)(NYSE:FTS) operates power generation, electric transmission, and natural gas distribution businesses in Canada, the United States, and the Caribbean. The $58 billion in utility assets generated regulated revenue streams that are both predictable and reliable. This is important for income investors who require steady dividends that grow over time.

Fortis drives revenue growth through strategic acquisitions and investments in new projects across the asset portfolio. The current $20 billion capital program is expected to increase the rate base enough over the next few years to support average annual dividend increases of 6%.

Fortis raised the dividend in each of the past 48 years. The current distribution provides a 3.5% dividend yield. Fortis stock trades near $61 at the time of writing compared to the 2022 high around $65, so investors have a chance to buy the shares on a dip right now.

Royal Bank

Royal Bank (TSX:RY)(NYSE:RY) is a profit machine. Canada’s largest bank by market capitalization generated more than $16 billion in earnings in fiscal 2021 and is off to a strong start in 2022. Royal Bank gets its revenue from several segments that include personal banking, commercial banking, wealth management, capital markets, investor and treasury services, and insurance.

The bank built up a large cash position during the pandemic as a safety net to ride out a potential wave of loan defaults. Government-assistance programs and plunging interest rates helped borrowers make their payments over the past two years, so Royal Bank didn’t need the extra cash and is now putting it to work to drive growth. The bank recently announced a $2.6 billion acquisition in the U.K. to boost its wealth management business in the region. Additional deals could be on the way.

Royal Bank is also repurchasing stock and raised the dividend by 11% for fiscal 2022. Another generous increase is probably on the way for fiscal 2023.

The stock is down to $131 per share from the 2020 high near $150. Investors who buy now can pick up a 3.7% yield.

The bottom line on top stocks for TFSA income

Fortis and Royal Bank have long track records of delivering reliable dividend growth and attractive total returns for investors. If you have some cash to put to work in a TFSA focused on dividends 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 has no position in any of the stocks mentioned. Fool contributor Andrew Walker owns shares of Fortis.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »