A market correction can be scary, but it also gives pensioners a chance to buy top TSX dividend stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) focused on generating reliable passive income.
TFSA benefit for retirees
Seniors who collect the Old Age Security (OAS) pension have to watch their income levels. The Canada Revenue Agency implements an OAS pension recovery tax once net world income tops a minimum threshold. The number to watch in the 2023 income year is $86,912 in earnings. Every dollar above that amount triggers a $0.15 clawback on the OAS payments that will be made in the July 2024 to June 2025 payment term.
Income of $87,000 seems like a lot, but it doesn’t take long for someone who receives a decent work pension, Canada Pension Plan, OAS, Registered Retirement Income Fund payments, and other income to top that amount.
One way to reduce or avoid the OAS clawback is to shift investments from taxable accounts to the TFSA. Retirees have as much as $88,000 in cumulative TFSA contribution room in 2023.
Fixed-income investment rates have improved considerably in the past year, but many top TSX dividend stocks still offer better yields and growing payouts.
TC Energy
TC Energy (TSX:TRP) has raised its dividend in each of the past 23 years and expects to hike the payout by at least 3% annually over the medium term. The company is working on a $34 billion capital program that should drive revenue and cash flow growth to support the distribution hikes.
TRP stock is down in the past year due to the pullback in the energy infrastructure sector and as a result of soaring costs on its Coastal GasLink pipeline project. Most of the bad news should now be out on the development, and the stock appears oversold.
Investors who buy at the current price below $55 can get a 6.8% dividend yield and wait for ongoing increases in the distribution to boost the return.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades for less than 10 times trailing 12-month earnings right now. That’s pretty cheap for a big Canadian bank that generates strong profits. All the banks are down amid rising recession fears and the recent failures of regional banks in the United States. While the Canadian banks are not immune to volatility in the global financial markets, they are well capitalized and have balanced revenue streams.
Ongoing volatility should be expected, and additional downside could certainly be on the way, but the dividend should be safe, and you can get a 6.2% yield right now from BNS stock.
Emera
Emera (TSX:EMA) is a Canadian utility company with $40 billion in assets located in Canada, the United States, and the Caribbean. The businesses are primarily rate-regulated operations that include natural gas distribution, electricity distribution, and electricity generation assets.
These tend to provide reliable revenue streams in all economic conditions, so Emera should be a good stock to own during a recession. The company expects capital investments to be at least $8 billion over the next three years. This will boost the rate base by up to 8% through 2025 and is expected to support annual dividend increases of about 4% over the medium term. At the time of writing, the stock offers a 4.7% dividend yield.
The bottom line
Retirees can take advantage of their TFSA to hold top TSX dividend stocks and generate tax-free income that won’t put OAS pension payments at risk of a clawback. If you have some cash to put to work, these dividend stocks deserve to be on your radar.
