Earlier this week, Statistics Canada reported that Canada’s inflation in June rose by 2.8%, a substantial decline from 3.4% in May. A considerable reduction in gasoline prices has dragged the inflation rate down. However, food and mortgage expenses continue to rise, with food prices increasing by 9% in June. So, I believe the Bank of Canada will not be in a hurry to ease monetary tightening initiatives.
Given the uncertain outlook, investors should be careful while investing through a TFSA (tax-free savings account), as a decline in stock price could also lead to a lower contribution room. So, investors should add stocks with solid underlying businesses, stable cashflows, and excellent dividend-paying records to their TFSA (tax-free savings account). Meanwhile, here are my two top picks that you could add to your TFSA to earn stable cash flows.
BCE
Telecommunication companies are excellent defensive bets in this digitally connected world. The sector requires a significant initial investment, thus creating a natural barrier for new entrants while expanding the margins of existing players. Besides, these companies enjoy stable cash flows due to their recurring revenue sources. Considering all these factors, I have selected BCE (TSX:BCE), one of Canada’s three top telecom players, as my first pick.
Through an aggressive capital investment of $14 billion over the previous three years, BCE has expanded its 5G and high-speed broadband infrastructure. By the end of 2022, the company covered 80% of the Canadian population with 5G service. With most of the infrastructure in place, the telco expects to lower its capital expenditures in the coming years, thus leaving more cash for dividends and share repurchases. So, I believe the company’s future payouts are safe.
Meanwhile, BCE has raised its dividends by over 5% yearly for the previous 15 years. With a quarterly dividend of $0.9675/share, it currently offers an impressive dividend yield of 6.65%. Besides, it trades at 2.1 times analysts projected sales for the next four quarters, making it an attractive buy.
Enbridge
Second on my list would be Enbridge (TSX:ENB), which operates a pipeline network transporting oil and natural gas across North America. Meanwhile, with regulated assets and long-term contracts generating around 98% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), the company’s financials are stable and predictable, thus allowing it to reward its shareholders with dividend hikes.
The company has been paying dividends uninterruptedly for the last 68 years. Besides, it has raised its dividends at a CAGR (compound annual growth rate) of over 10% over the previous 28 years. It currently pays a quarterly dividend of $0.8874/share, with its forward yield at an impressive 7.23%.
Meanwhile, Enbridge is progressing with its $17 billion secured growth projects, with the management confident of putting around $6.4 billion worth of projects into service by the end of 2024. Besides, the growing export of oil and natural gas from North America could increase the demand for the company’s services. Given its strong financial position with liquidity of $12.6 billion, I believe the company is well-equipped to fund its growth initiatives and pay dividends.
However, amid the recent weakness, Enbridge trades at 16.8 times analysts’ projected earnings for the next four quarters. Considering its growth prospects, solid balance sheet, and high dividend yield, Enbridge could be a worthwhile buy.
Bottom line
For 2023, CRA (Canadian Revenue Agency) has set the contribution room at $6,500. Meanwhile, if you have not maxed out, the above two Canadian stocks would be an excellent addition to your TFSA.
