The TFSA (Tax-Free Savings Account) was introduced in 2009 to encourage savings among Canadians. Due to the flexibility associated with this registered account, the TFSA is extremely popular in Canada.
The TFSA allows you to hold several qualified investments such as stocks, bonds, exchange-traded funds, and mutual funds. Moreover, any returns earned in a TFSA, ranging from interests to dividends and capital gains, are exempt from Canada Revenue Agency taxes.
I have identified two blue-chip dividend stocks that you can buy and hold in a TFSA to create a recurring tax-free stream of income each quarter.
TC Energy stock
One of the largest companies in Canada, TC Energy (TSX:TRP) has a 93,700-kilometre natural gas pipeline network that serves high-value demand markets in North America. In fact, it supplies over 25% of the natural gas in the continent and moves 20% of the crude oil required to Canada.
Its 4,900-kilometre liquids pipeline system connects the WCSB, which is among the largest oil reserves globally, to the largest refining markets in the United States. These commercial structures are underpinned by long-term contracts, allowing TC Energy to generate cash flows across market cycles.
TC Energy also has a power and energy solutions business where it owns 4,300 megawatts of capacity. The company explained, “We continue to progress numerous energy transition growth initiatives, including opportunities to increase capacity and extend the life of our Bruce Power nuclear facility while also continuing to explore or invest in renewables, hydrogen, pumped storage and carbon capture and storage (CCUS).”
With an asset base of $100 billion, TC Energy generated comparable EBITDA (earnings before interest, tax, depreciation, and amortization) of $9.9 billion in 2022. Its comparable earnings stood at $4.3 billion, or $4.3 per share, while operating cash flow was much higher at $7.4 billion.
TC Energy placed $5.8 billion of assets into service, which should drive future cash flows higher and support dividend raises in 2023 and beyond. The TSX energy giant has increased dividends by 6.4% annually in the last 20 years.
Canadian Natural Resources stock
Another energy heavyweight, Canadian Natural Resources (TSX:CNQ) produces natural gas and crude oil. It owns a vast land base and is equipped with robust infrastructure to target growth opportunities.
The largest producer of crude oil in Canada, the company’s huge size allows it to benefit from large-scale drilling and development programs while minimizing capital-expenditure costs. These costs are also managed, as Canadian Natural Resources owns and operates centralized treating and sand handling facilities, resulting in economies of scale.
While CNQ is part of a cyclical industry, it has managed to increase dividends by 20% annually in the last 23 years, which is quite exceptional. Since April 2003, CNQ stock has returned over 2,000% to shareholders, easily outpacing the broader indices.
Despite these outsized gains, Canadian Natural Resources currently offers investors a tasty dividend yield of 4.5%. Investors can easily expect the payouts to increase in 2023 due to an elevated pricing environment and the company’s strong balance sheet. In the last two years, CNQ has decreased net debt by almost $11 billion, providing it with enough room to reinvest in capex or raise dividends.
