TFSA: 2 Top Canadian Dividend Stocks for Your $6,500 Room Contribution

Two outperforming, Canadian dividend stocks with attractive yields are excellent choices for TFSA investors maximizing their contribution room in 2023.

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A wall of worry still stands in the second quarter (Q2) of 2023, despite a recovering stock market. While the Bank of Canada (BOC) didn’t raise interest rates after two consecutive meetings this year, the pause is temporary. BOC Governor Tiff Macklem said rates would stay in the restrictive territory and hikes might be necessary to bring inflation down to 2%.

Meanwhile, Tax-Free Savings Account (TFSA) investors who have yet to use their $6,500 annual contribution limit for 2023 can consider taking positions in two Canadian dividend stocks to earn passive income. Manulife Financial (TSX:MFC) and Killam Apartment (TSX:KMP.UN) pay attractive dividends and should continue outperforming.

Both companies are Dividend Aristocrats, and, therefore, prospective investors can except growing payouts yearly. More importantly, the respective businesses can overcome the headwinds and market uncertainties.

Successful market diversification

Many companies saw their earnings drop in 2022 due to the challenging economic environment. However, insurance giant Manulife displayed stability and reported higher earnings versus 2021. Its president and chief executive officer (CEO) Roy Gori said, “Our results reflect the strength of our diverse global franchise.”

In the 12 months that ended December 31, 2022, net income attributed to shareholders increased 2.6% year over year to reach a record $7.3 billion. Gori credits the positive earnings report to the strength of Manulife’s market diversification amid a challenging economic environment.

One of the business highlights in 2022 was the acquisition of a fully operating public fund management company in mainland China. The $47.38 billion financial services provider owns 100% of Manulife TEDA Fund Management Company Limited. Gori added that Manulife’s digital transition is ongoing and would be a long-term trend.

Manulife trades at $25.61 per share (+7.51% year to date) and pays a juicy 5.71% dividend if you invest today.

Rising apartment demand

The housing affordability crisis and rising mortgage costs are a bane to homebuyers but a boon for Killam Apartment. The $1.99 billion growth-oriented real estate investment trust (REIT) leases homes for any life stage. It owns, operates, and develops apartments and manufactured home communities (MHCs) in Atlantic Canada, Alberta, British Columbia, and Ontario.

Apart from 231 apartment properties and 40 MHCs, Killam has nine commercial properties. Industry experts expect apartment REITs in Canada to benefit from changing demographics. They add that maturing millennials will likely rent longer and boost apartment demand.

For the full-year 2022, property revenue and net operating income (NOI) rose by an identical 13% year over year to $328.85 million and $206.91 million. Management said the multi-family market fundamentals in Canada last year were the strongest it has seen in 20 years.

Killam ended the year with a 98.3% occupancy rate — the highest level ever in its operating history. The tenant turnover rate of 22% was also lower than 33% in pre-COVID.  It’s no wonder the REIT is up 6.28% year to date. At $17.06 per share, the dividend offer is 4.1%.          

Be tax free all the way

TFSA investors should limit their holdings to Canadian dividend stocks. Dividend earnings from foreign stocks, including U.S. stocks, are subject to a withholding tax. Also, monitor your available limit and do not overcontribute to avoid paying penalty taxes. Lastly, Manulife and Killam Apartments aren’t volatile investments, so you won’t likely lose money in your TFSA.

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.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Killam Apartment REIT. The Motley Fool has a disclosure policy.

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