2023 TFSA Contribution Time: 2 Dividend Stocks to Buy With $6,500

Buy these two great dividend stocks in your TFSA as a part of a diversified portfolio if you haven’t already.

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This year, eligible Canadians have $6,500 of tax-free contribution limit for their Tax-Free Savings Account (TFSA). If you haven’t already, you should make you contribution and potentially invest in solid dividend stocks for long-term investment.

You don’t have to make a lump sum contribution of $6,500. Understandably, that can be a lot of money to come up with in one go for many Canadians. Getting into the habit of saving and investing monthly is a good way to go. If you had started in January, you would only need to make monthly contributions of about $542 to add up to $6,500 by the end of the year. Even if you can’t save that much, save as much as you can each month. Any leftover contribution limit can be added into your TFSA contribution room for the future. The important thing is to start investing.

Here are two dividend stocks that are, in my opinion, among the best Canadian stocks to buy.

Brookfield Renewable Partners

Brookfield Renewable Partners (TSX:BEP.UN) pays a good cash distribution that yields just over 4.2% at US$31.81 per unit. Importantly, the renewable power platform also has a growth kicker. Indeed, its long-term total returns have outperformed the market and the utilities sector.

For example, up till the end of 2022, including dividend reinvestment, TSX:BEP.UN delivered a compound annual growth rate (CAGR) of 15% since inception and a CAGR of 19% over five years versus, respectively, the S&P Utilities Index’s returns of 8% (since inception) and 9% (over five years), and S&P/TSX Composite Index’s returns of 7% and 9%.

Currently, its diversified renewable portfolio across the technologies of hydro, wind, solar, and distributed energy and sustainable solutions has just over 25 gigawatts (GW) of operational capacity. To highlight, it has about 110 GW of capacity in the development pipeline!

Management estimates that through 2027, Brookfield Renewable can grow its funds from operations (FFO) per unit by north of 10% per year from a combination of inflation escalation, margin enhancement, its development pipeline, and merger and acquisition activities. An 8% FFO growth rate is already secured and funded.

The FFO-per-unit growth supports healthy cash distribution growth and is what helps drive the stock price higher over time. BEP has increased its cash distribution since inception for over a decade. Its 10-year cash-distribution growth rate is 5.7%. Without dividend reinvestment, the stock delivered total returns of about 13% per year over the last 10 years. With dividend reinvestment, it would have been total returns of about 15.6% per year.

Alimentation Couche-Tard

Stock price appreciation is tax deferred, unless you sell. However, ultimately, when you do sell, you would have to pay the tax man if the shares are held in a taxable account. The TFSA is a great place to shelter price appreciation for growth stocks like Alimentation Couche-Tard (TSX:ATD), which has also paid a fabulous dividend that has grown at a fast rate.

The global convenience store consolidator’s 15-year dividend-growth rate of approximately 23% is eye-popping. The company generates substantial operating cash flow, which it has reinvested into the business for high returns. For example, its five-year return on invested capital is approximately 13.8%, while its five-year return on equity of about 23.4% is even higher, suggesting top-notch capital allocation, which the management is to be applauded for.

The growth stock’s 10-year total returns are approximately 22% per year, which makes it an outperformer. It continues to see opportunities to expand in Asia and the United States via acquisitions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has positions in Brookfield Renewable Partners. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.

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