TFSA: 3 Canadian Dividend Stocks for Your $6,500 Room Contribution

Suncor Energy stock, a food stock, and a real estate play could boost your TFSA’s income-generating power in 2023 and beyond.

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Canadian inflation dropped to 2.8% in June. This is wonderful news for households whose savings are losing purchasing power at a much slower rate. However, income growth is still preferable to cushion investors from any further inflation and to repair retirement nest eggs cracked by recent inflation bouts. The Canadian Tax-Free Savings Account (TFSA) can shelter your investments and savings from the tax man, and I’d recommend investors diligently maximize their $6,500 annual TFSA contribution room for 2023.

The following Canadian dividend stocks could boost the passive income-generating power of your TFSA portfolio. The list includes a tiny income-boosting real estate play before the housing market fully recovers.

Suncor stock

Suncor Energy (TSX:SU) is a blue-chip Canadian integrated energy stock that income-oriented investors may load up for its well-covered 5.4% dividend yield, and stock price growth potential.

Suncor stock fell out of love with the market after a 55% dividend cut during the COVID-19-induced oil-price panic of 2020. Shares lagged behind industry valuation recovery rates, as energy stocks pushed the TSX higher in 2022. SU stock trades at pre-pandemic levels today, while peer industry stocks fetch better prices. However, management can be forgiven for taking precautionary action to preserve the company’s balance sheet during an unprecedented economic crisis, and as oil prices dropped to negative for the first time.

Fast forward to 2023, Suncor has more than restored its 2020 dividend, is focused on reducing operating costs, and has a new chief executive officer who is focused on reducing expensive debt and enhancing shareholder returns through dividends and share repurchases.

Suncor stock trades cheaply at a market cap-to-free cash flow multiple of 8.8, which is significantly below pre-pandemic multiples of 11.6 seen in February 2020. Investors can buy Suncor’s growing cash flows, and future dividends more cheaply today than they could before COVID-19.

Buy this Canadian Net REIT’s tax-free 6.9% yield

Canadian investors can gain maximum tax shelter on real estate investments if they buy real estate investment trusts (REITs) in a TFSA. Canadian REITs are generally exempted from annual income taxes, and investors may avoid paying personal income taxes on REIT distributions under the TFSA shelter.

Canadian Net Real Estate Investment Trust (TSXV:NET.UN) is a small net-lease structured (a low expense and low operating risk business model) REIT that’s growing its net operating income and pays a monthly distribution that yields a juicy 6.9% annually. The small REIT reported 100% occupancy rates for the first quarter of 2023, grew its adjusted funds from operations (AFFO) by 6.6% year over year and paid out 57% of its AFFO in monthly distributions during the first quarter of 2023.

Canadian Net REIT could boost a TFSA investor’s passive income. Units trade 22% lower year to date, as publicly traded real estate fetches depressed prices, and following Canadian Net REIT’s single property sale last quarter.

Interestingly, the recent sale closed at a premium to the small property’s book value.

The trust has already declared monthly distributions of 2.875 cents per unit through September 2023. Buying the tiny, beaten-down REIT with a small portion of your $6,500 TFSA contribution room for 2023 could add a reliable passive-income-producing asset to your investment portfolio.

Nourish your TFSA growth cravings with Pizza Pizza Royalty stock

TFSA investors looking to buy monthly-dividend stocks may also check out Pizza Pizza Royalty (TSX:PZA) and its 6% dividend yield. The $373 million quick-service restaurant franchisor has a growing portfolio of more than 600 outlets across Canada and is expanding into Mexico. It stands to receive growing cash inflows in royalties from its growing franchisee network based on periodic sales.

Income-oriented dividend stock investors welcome how the cash flow-generating model has done to their cash cow. Recent food inflation bouts in Canada boosted Pizza Pizza’s royalty receipts as menu prices escalated. The company reported 13.6% in same-store sales growth and a 16.1% year-over-year increase in royalty pool sales for the first quarter of this year. It raised its monthly dividends by 3.6% in March and a further 3.5% in June.

What’s more, Pizza Pizza’s stock price has gained 11% year to date and is up 81% over the past three years. Momentum is positive, and the pizza maker could nourish your TFSA’s growth cravings.

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 Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Net Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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