Our Tax-Free Savings Account (TFSA) limit is $6,500 this year. Because you get tax-free returns on your investments in your TFSA, it makes good sense to maximize your TFSA and maximize your returns. It may be counterintuitive, but maximizing your returns doesn’t necessarily mean striving for the highest returns. After all, high-returns potential come with high risk as well.
Stocks are the asset class that has historically delivered the highest returns. However, within the realm of stocks, you can pick stocks wisely for long-term, tax-free wealth creation. This can mean aiming for more consistent returns instead of the highest returns.
Some of the best Canadian stocks to buy for your TFSA include dividend stocks that provide juicy and safe dividend payments regularly.
Canadian Natural Resources
If you’re still bullish on energy, you can consider large-cap diversified oil and gas company Canadian Natural Resources (TSX:CNQ). The company is characterized by large, low-risk, and high-value reserves. As well, it has a diversified and balanced asset base that allows it to more flexibly allocate capital and target sustainable growth.
CNQ has an investment-grade S&P credit rating of BBB-. At $81.90 per share, CNQ stock offers a dividend yield of about 4.4%. Analysts believe it’s undervalued by 11% and has upside potential of 12% over the next 12 months.
Its 2022 payout ratio was 45% of earnings and 34% of free cash flow. It must maintain a low payout ratio to provide a big margin of safety for its dividend because of the ups and downs of the energy sector through the economic cycle.
Despite the unpredictability of the energy sector, the top energy stock has an impressive dividend history. It has increased dividends for 22 consecutive years with a 20-year dividend-growth rate of 21.6%. Notably, CNQ’s performance is still unpredictable. For example, in the last 20 years, in the worst year, it witnessed a dividend increase of only 5%. But the best year saw a 30% dividend hike!
Bank of Nova Scotia stock
Bank of Nova Scotia (TSX:BNS) remains a smart buy today. The BNS stock price action in the last half year suggests it’s getting support around the $63-per-share level. Importantly, the bank stock still offers a compelling dividend yield of close to 6%. This yield is the highest among the Big Six Canadian banks, making BNS stock a smart buy for income-hungry investors. Getting a nice passive income from your investments can be super helpful in helping pay the bills.
Its trailing 12-month payout ratio was almost 60% of earnings. This payout ratio is sustainable, but it’s at the high end of its historical range. It could mean the near-term dividend hikes could be minimal or none.
That said, the dividend stock trades at a meaningful discount of approximately 20% from its long-term normal valuation. Therefore, should the international bank re-ignite growth, the undervalued stock can revert to the mean for sizeable capital gains over the longer term. In the meantime, you get paid a juicy dividend income to wait.
