Canadians can use the benefits of the TFSA (Tax-Free Savings Account) to create a passive-income stream and supplement their pension plans in retirement. In 2023, the average annual payout from the CPP (Canada Pension Plan) for a 65-year-old is less than $10,000. So, it’s advisable to generate multiple cash flow streams to boost pension payouts.
One way is to create consistent dividend income in a TFSA by holding quality stocks that have the ability to thrive across market cycles.
Let’s see how you can boost your TFSA retirement with these winning stocks.
Hydro One stock
One of the largest electrical utilities in North America, Hydro One (TSX:H) is valued at a market cap of $22 billion. It enjoys a significant scale and a leadership position in Ontario, which is Canada’s largest province in terms of population.
Armed with an investment-grade balance sheet Hydro One pays shareholders an annual dividend of $1.19 per share, indicating a dividend yield of 3.2%. It has a target payout ratio of between 70% and 80% providing the company with opportunities for growth in terms of rate-base expansion.
Hydro One operates in a stable and rate-regulated environment, allowing it to generate predictable cash flows. In the last five years, Hydro One stock has more than doubled shareholders’ returns, easily outpacing the broader indices.
Priced at 21 times forward earnings, the TSX stock is reasonably valued and trades at a discount of 7% to consensus price target estimates.
Bank of Montreal stock
A banking giant, Bank of Montreal (TSX:BMO) offers shareholders a dividend yield of almost 5%. While the banking sector is highly cyclical, BMO has increased dividends by 8% annually in the last 27 years.
Priced at nine times forward earnings, BMO stock is quite cheap and trades at a discount of 11% to consensus price target estimates.
In the fiscal second quarter (Q2) of 2023 (ended in April), BMO reported an adjusted net income of $2.2 billion, or $2.93 per share. Its performance in Q2 showcased the company’s highly diversified business mix and the stability of its business mix.
Despite an uncertain macro environment, BMO’s personal and commercial banking businesses delivered solid pre-provision, pre-tax earnings offset by a weak performance in verticals such as wealth management and capital markets.
BMO also closed the largest acquisition in company history as it purchased the Bank of West and ended Q2 with a CET1 (common equity tier one) ratio of 12.2%.
Canadian Natural Resources stock
The final TSX stock on my list is Canadian Natural Resources (TSX:CNQ). Higher energy prices and the reopening of economies allowed CNQ to report record earnings in 2022. The energy giant has also increased dividends by 20% annually in the last two decades, which is exceptional for an oil company.
It currently offers shareholders a dividend yield of 4.9% and trades at a discount of 20% to price target estimates.
Despite lower oil prices in Q1, the company reported adjusted net earnings of $1.9 billion and funds flow of $3.4 billion. After accounting for dividends and base capital expenditures, its free cash flow stood at $1.4 billion, allowing CNQ to further strengthen its balance sheet.
CNQ has already returned $2.8 billion to shareholders via dividends and buybacks in the first four months of 2023. It’s top-tier reserves and asset base provides Canadian Natural Resources with competitive advantages in terms of capital flexibility and efficiency.
