You want to own the best stocks you can imagine inside your TFSA (Tax-Free Savings Account). Why? All income earned in the TFSA has no tax liability. That means that all your returns are protected from the CRA (Canada Revenue Agency) and you have the ability to compound your wealth over long periods.
If you are looking specifically for dividends, don’t just look for the highest-yielding stock. Look for the best-quality business that also happens to pay a dividend. You have a better chance of winning enduring, growing streams of dividends if your company is also steadily growing earnings and cash flows.
Three stocks that would demonstrate this perfectly in any TFSA are Canadian National Railway (TSX:CNR), BSR Real Estate Investment Trust (TSX:HOM.U), and TELUS Corp. (TSX:T).
CN Rail: A long-term total return story for any TFSA
Canadian National Railway is one of Canada’s longest running businesses. It has been paying and growing its dividend for almost three decades. It only yields an approximate 2% dividend, but it has aggressively grown the dividend by a low-teens annual rate for a decade.
CN just delivered better-than-expected first-quarter results. It grew diluted earnings per share by 38%! Now, it wasn’t all good. The stock fell nearly 5%, as the company noted that it is seeing a slowdown in economic activity, which could impact transport volumes.
However, this pullback could be an opportunity. Given its strong pricing power and strong competitive position, this TFSA stock rarely draws down.
The company has a great new management team, and it has plenty of opportunities to keep expanding its network for customers. For a long-term, low-teens-return compounder, this a great TFSA stock.
BSR REIT: An undervalued real estate stock with a nice dividend
If you are looking for cheap dividend stock with high-quality assets, BSR REIT is an intriguing real estate stock for your TFSA. BSR is Canadian listed, but it owns a portfolio of garden-style apartment communities in Texas, Oklahoma, and Arkansas.
BSR has one of the youngest multi-family portfolios amongst listed peers. Likewise, its portfolio is largely located in some of the fastest-growing jurisdictions in America.
The company has been benefiting from strong +96% occupancy and high single digit rental rate growth. It is exceptionally well-managed, and insiders own a large stake of the business. Yet this stock trades at a nearly 40% discount to its private market value.
Today, it trades with a 4% dividend. Real estate stocks are depressed on worries about high interest rates. BSR has a very strong balance sheet with all its debt fixed for the next several years. When interest rates start to decline again, this stock could see significant upside back to its real property value.
TELUS: A long-term TFSA dividend stock
TELUS has been one of the best telecom stocks in Canada. For the past five years, it has consistently beaten the market in customer additions, earnings growth, and dividend growth.
TELUS has smartly been investing in its network for several years. That is expected to pay off in elevated free cash flow yields in the coming few years. That all means the potential for high-single-digit annual dividend increases over the near term.
What make TELUS unique is that it is more than just a telecom stock. It is fast becoming a digital services leader across Canada. It provides employment and health benefits, virtual healthcare, agriculture and food technology solutions, and digital, AI, customer engagement, and data solutions.
This provides diversity and elevated growth opportunities for TELUS over the long term. For its attractive 4.9% dividend and the digital business optionality, this is a favourite TFSA dividend stock.
