The tax-free savings account, or TFSA, is a really useful aid in building wealth. Therefore, we should aim to make full use of it. This means investing as much as possible to take full advantage of the $88,000 TFSA contribution limit. It also means investing in the best securities.
Dividend stocks that have both high dividend yields and high capital gains potential are the best stock candidates for your TFSA. Here are three popular Canadian companies to start with.
Blackberry stock
I know that many investors doubt the earnings potential for Blackberry Ltd. (TSX: BB). I mean, it’s been so long that we’ve been waiting for something, anything, to make us believe that the company can be a great business again. And we keep waiting.
But Blackberry stock, in my view, is on the cusp of a breakout. The stakes are high and the risk is there, but so is the potential. BlackBerry’s leading technologies in the machine-to-machine communication (internet of things) and cybersecurity industry put Blackberry in an enviable position.
In fiscal 2023, Blackberry’s auto software business (QNX) performed really well. It was a record year for design wins, and backlog hit a record high of $640 million. This is foreshadowing future revenue growth. In fact, management’s guidance for this business is for revenue growth of 17% to 21% in the next fiscal year, followed by even stronger growth in the years after that. Accordingly, analysts have been increasing their estimates on the stock.
If, in fact, Blackberry can deliver on its promises, the capital gains on the stock would be massive. And it would be nice if those capital gains would be tax-sheltered, wouldn’t it? Your TFSA can take care of that, especially if you take advantage of your full TFSA contribution limit.
Enbridge for tax-free dividend income
As one of Canada’s leading energy infrastructure company’s, Enbridge Inc. (TSX: ENB) continues to churn out massive amounts of cash flows. It also continues to reward investors with a generous dividend yield and dividend growth.
In fact, Enbridge is currently yielding 6.65%. Also, Enbridge has increased its dividend annually for the last 28 years. During this time period, its annual dividend has grown at a CAGR of 7.25%, to the current $3.55 per share. This dividend profile makes Enbridge stock an ideal choice for your TFSA. The tax savings on this dividend income can really add up over time.
There’s a reason why Enbridge stock is so popular. Looking ahead, Enbridge remains committed to growing its dividend. Holding Enbridge stock in your TFSA can allow you to gain the full benefit.
Telus for tax-free dividend income and capital gains
Telus Corp. (TSX: T) has been one of Canada’ telecom success stories, driven by a rapidly growing subscriber base. This has been reflected in Telus’ rapid revenue and dividend growth. In the last five years, revenue has grown 30%, or at a compound annual growth rate (CAGR) of 5.5%, to over $18 billion.
Also, dividend growth at Telus has been impressive. In the last 10 years, Telus’ dividend has grown at a CAGR of 8%. Its most recent dividend increase initiated this month was 7.4%.
Telus is a good candidate to maximize your TFSA given its generous dividend yield of 5.3% and the stock’s strong potential for capital appreciation.
