In the world of investing, it’s important to remember to take advantage of any tax-savings vehicles. One such vehicle is the Tax-Free Savings Account, or TFSA. Income and capital gains from investments in this account is tax free — this makes it all the more valuable. As you look to maximize your contributions and reach your TFSA contribution limit, bank and utility stocks are usually good places to turn for income.
Here are two safe stocks to consider to supplement your income.
TFSA stock #1: Northland Power has a 4.1% dividend yield
Northland Power (TSX:NPI) has produced electricity from clean-burning natural gas and renewable resources for 35 years. Its green global infrastructure assets span the globe. The company has clean-burning natural gas, wind, and solar assets in places such as Asia, Europe, and North America.
In the last few years, Northland has reported strong and growing revenue and cash flows. In fact, in the last five years, its cash flows have grown at a five-year compound annual growth rate of 13.6%. But after a record 2022, things have taken a turn. Northland Power’s stock price has plummeted 36% from its 2022 highs, as energy prices returned to more normal levels, inflation reared its ugly head, and rates increased.
While Northland has certainly felt these pressures in its first-quarter 2023 results, the long-term outlook remains the same. Northland is a growth company, with significant development opportunities in the booming renewables industry. As such, management continues to expect adjusted 2023 earnings before interest, taxes, depreciation, and amortization of $1.2 to $1.3 billion.
Yet valid investor concerns remain. Northland is heavily indebted at this time. Also, inflation continues to put upward pressure on development costs. Finally, the possibility of another equity issue is top of mind, as Northland pushes forward on its many projects.
TFSA stock #2: Scotiabank raises its dividend
Bank of Nova Scotia (TSX:BNS) is a $78 billion Canadian bank with the largest international exposure among the group. In fact, roughly 20% of its earnings comes from international banking. The last few years have been difficult for the bank, as it had to take some major writedowns. This affected the bank’s stock price, as you can see in the graph below.
Today, Scotiabank stock is yielding a very generous 6.42%. This is a function of the decline in the stock price but also of continuous dividend increases. In fact, the bank just increased its dividend, even as its earnings results came in below expectations. Its dividend is now $1.06 per share, up from $1.03 per share.
The bank’s second-quarter results are a reflection of what’s going on in the banking industry today. Adjusted income fell 10% and provisions for credit losses skyrocketed 224% to $709 million. This was due to economic uncertainty as well as challenging market conditions in Chile and Columbia.
Motley Fool: The bottom line
The TFSA investor today has many higher dividend yield stocks to choose from. A key factor to consider, however, is the safety of the dividend, which is not always easy to determine. While keeping the $88,000 TFSA contribution limit in mind, the two stocks that I’ve discussed in this article are what I believe to be dividend stocks that you can safely add to your TFSA to supplement your income.
