The Tax-Free Savings Account (TFSA) limit for 2023 is $6,500. This boosts the total maximum TFSA contribution space to $88,000 per person for qualifying Canadian residents who were at least 18 years old when the program started in 2009. New TFSA investors, young and old, are searching for good TSX stocks to buy to generate passive income and total returns for retirement.
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TFSA benefits
Ideally, investors should maximize TFSA and Registered Retirement Savings Plan (RRSP) contributions each year. This, however, isn’t possible for many people, especially in the current era of high inflation and soaring borrowing costs.
Young investors might choose to contribute cash to a TFSA first and save RRSP space for later in their careers when their marginal tax rate is likely be higher. RRSP contributions reduced taxable income. The TFSA also provides more flexibility. Funds can be pulled to cover an emergency at any time and the amount of money removed opens up new contribution space in the following calendar year, so you can make it up later, if needed.
Seniors who collect Old Age Security (OAS) pensions can benefit by using a self-directed TFSA to hold investments to generate passive income. The Canada Revenue Agency does not tax TFSA income and won’t use it when calculating net world income used to determine the OAS clawback.
Top TSX dividend stock with good track records of distribution growth are popular picks for a self-directed TFSA focused on passive income and total returns.
BCE
BCE (TSX:BCE) is one of those stocks investors should be able to buy and forget for decades. The company enjoys a strong competitive position in the Canadian communications industry and generates most of its revenue and cash flow from subscriptions to essential mobile and internet services. BCE has the ability to raise prices when it needs extra cash to cover rising costs. This is helpful during periods of high inflation.
BCE increased its dividend by at least 5% in each of the past 14 years. Another distribution hike in the same range is probably on the way for 2023. BCE is expected to report solid full-year 2022 results on February 3, 2023.
BCE trades near $62 per share compared to the 12-month high around $74. Investors who buy BCE stock at the time of writing can get a 5.9% dividend yield.
TD Bank
TD (TSX:TD) trades for close to $91 per share compared to $109 at the peak in 2022. The pullback took the stock as low as $78 last summer, but TD still looks cheap at the current multiple of just 9.6 times trailing 12-month earnings.
TD built up a war chest of excess cash during the pandemic and is using the funds to make two strategic acquisitions in the United States. The US$13.4 billion purchase of First Horizon will add more than 400 branches and will make TD a top-six bank in the American market. TD is also spending US$1.3 billion to buy Cowen, an investment bank.
In normal times, TD typically raises its dividend by more than 10% per year. The current payout provides a 4.2% dividend yield.
The bottom line on top TSX stocks to start a TFSA retirement fund
BCE and TD are top TSX dividend stocks that should continue to raise their distributions. If you have some cash to put to work in a self-directed TFSA, these stocks appear cheap right now and deserve to be on your radar.
