There’s never a bad time to start thinking about building a stream of passive income. And why not when the TSX is loaded with high-quality, dividend-paying companies? You don’t need to search far to find a top yield or dependable payout on the TSX today.
When researching dividend stocks, there’s more than just the dividend to evaluate. In addition to passive income, dividend stocks also have the potential to provide an investment portfolio with defensiveness, diversification, and even market-beating growth to name a few examples.
Using a TFSA to invest in stocks
Once you’ve chosen the dividend stock you’re interested in owning, the next decision to make is the type of savings account that you’ll be keeping those investments in.
While the contribution limit may only be $6,500 in 2023, the Tax-Free Savings Account (TFSA) is an excellent choice for long-term dividend investors. Unused contributions can also be carried over from year to year. For those aged 18 or older in 2009, the total contribution limit is actually $88,000.
The reason why the TFSA is an excellent choice for dividend stocks is its flexibility. Investors have the ability to withdraw their earned passive income at any point in time completely tax free. In addition, investors choosing to instead reinvest their passive income can let their investments appreciate completely free of ever being taxed.
With that, I’ve reviewed two dividend stocks at the top of my own watch list right now. Passive-income investors with room available in the TFSA should seriously consider taking a closer look at these two companies.
Dividend stock #1: Toronto-Dominion Bank
When it comes to dividend stocks, you can’t go wrong by starting with the Canadian banks. The Big Five not only all have impressive yields but also own some of the longest dividend-payout streaks around.
Toronto-Dominion Bank (TSX: TD) would be my top choice for passive-income investors interested in owning one of the Big Five.
The bank’s 4.8% dividend yield is certainly one reason why it’s on my watch list. But what separates TD Bank from its peers for me is its growth potential in the U.S. TD Bank has already established itself as a banking leader in the U.S., and there’s still plenty of market share still to be captured.
Passive-income investors looking to increase their portfolio’s exposure to the U.S. should consider investing in this $150 billion bank.
Dividend stock #2: Brookfield Renewable Partners
For passive-income investors that are willing to sacrifice yield for growth potential, Brookfield Renewable Partners (TSX: BEP.UN) is the company for you.
The renewable energy leader has returned close to 100% to its shareholders over the past five years. And that’s not even including dividends, which is currently yielding above 4%.
Shares have taken a hit over the past two years, which partially explains why the yield looks so attractive. But as the stock gets back on track, we’ll see that yield begin dropping.
Brookfield Renewable Partners is already up 15% in 2023 — well on its way to returning to all-time highs, so we may not see the dividend yielding above 4% for that much longer.
Investors looking for both passive income and growth won’t find many better options than this market-leading renewable energy company.
