The high volatility in the equity market and concerns of recession are good reasons to keep investors away from investing in stocks. Amid the challenging landscape, investors can still generate a tax-free income from stocks.
Notably, several top TSX stocks continue to return cash to their shareholders irrespective of the volatility in the market and economic situations. Moreover, investing in these stocks via the TFSA route helps you earn a steady tax-free income. With worry-free income in the backdrop, here are my top two picks that offer a well-protected and high yield.
NorthWest Healthcare Properties REIT
With an attractive yield of 6.5% and solid dividend payment history, NorthWest Healthcare (TSX:NWH.UN) is a reliable investment within the REIT space to generate steady income amid all market conditions. Its defensive portfolio of healthcare real estate and tenants backed by government funding supports its cash flows and helps it to cover its payouts easily.
Besides its defensive business, NorthWest benefits from the high occupancy rate and long lease expiry term. These add visibility over its future cash flows and payouts. What’s more, most of its rents are inflation-indexed, which is positive.
Overall, NorthWest Healthcare’s geographically diversified assets, inflation protection with an annual rent growth arrangement, opportunities in the U.S. market, and robust acquisition and development pipeline augur well for future growth and drive its payouts.
Enbridge
The resiliency of Enbridge’s (TSX:ENB)(NYSE:ENB) payouts is reflected in its solid track record of dividend growth. It has raised its dividend for 27 years. However, what stands out is that Enbridge has paid and raised its dividend, even during the pandemic. This suggests that Enbridge can enhance its shareholders’ value in all market conditions, and investors can easily rely on it for consistent income.
Enbridge is well positioned to capitalize on the strong energy demand and higher prices. Meanwhile, its diversified assets, recovery in its mainline volumes, high asset utilization rate, contractual arrangements to safeguard against price and volume risk, and inflation-protected EBITDA would drive its free cash flows and support share buybacks and dividend payments.
Further, its solid capital program, benefits from the projects recently placed into service, expansion of renewables capacity, and acquisitions will likely support its growth.
Thanks to the solid fundamentals and favorable operating environment, Enbridge expects to deliver 5-7% growth in its DCF (distributable cash flow) per share over the next three years. The 5-7% growth in its DCF/shares indicates that Enbridge’s future dividend could increase by mid-single digits. Also, its target payout ratio of 60-70% is sustainable in the long term, and its dividend yield of 6.3% is dependable.
Bottom line
On average, these two companies offer a dividend yield of 6.4%, which is well protected and can be easily relied upon. Further, to reiterate, investors should invest in these stocks through the TFSA route to earn tax-free dividend income.
Notably, the cumulative investment limit for TFSA stands at $81,500. This implies that investors can earn a tax-free dividend income of $5,216/year, or about $435 a month.
