TFSA: 2 Canadian Dividend Stocks for Your $6,500 Room Contribution

These undervalued dividend stocks could deliver strong returns over the next few years for outsized wealth creation in your TFSA.

| More on:

You should maximize your Tax-Free Savings Account (TFSA) to take full advantage of the tax-free growth. Some Canadians like to save a portion of their TFSA room for fixed-income investments like Guaranteed Investment Certificates (GICs) that earn interest income, which are otherwise taxed at your marginal tax rate in non-registered accounts.

You should also buy quality dividend stocks in your TFSA for the chance to create greater wealth. For instance, if you’re able to generate annual returns of 12% per year, you would double your investment in about six years, according to the Rule of 72. Here are a couple of dividend stocks that have the potential to deliver total returns at a compound annual growth rate of about 12% per year over the next five years.

Brookfield Infrastructure

You can invest in Brookfield Infrastructure Partners (TSX:BIP.UN) or Brookfield Infrastructure (TSX:BIPC) to gain exposure to Brookfield Infrastructure. The company offered BIPC, which is also listed on the New York Stock Exchange, to expand its investor base, particularly to attract U.S. investors for simpler tax reporting.

However, BIPC tends to trade at a premium valuation to BIP, which consequently offers a higher cash-distribution yield of almost 4.8%, which is about 17% more income than BIPC’s dividend yield. Therefore, in a TFSA, investors should consider investing in Brookfield Infrastructure Partners for higher income, which could lead to greater total returns.

The global utility is able to provide resilient performance through economic cycles. Its diversified infrastructure assets across sectors have demonstrated the ability to pay a solid, growing cash distribution. It has increased its cash distribution for about 15 consecutive years, and it has a large backlog of growth projects to support continued dividend growth. Its five-year cash-distribution growth rate is 6.6%, and it aims to continue dividend growth of 5-9% per year.

At $43.28 per unit at writing, the 12-month analyst consensus price target suggests a substantial discount of 29%. So, the top utility stock has a higher probability of driving outsized returns over the next few years.

Jamieson Wellness

Jamieson Wellness (TSX:JWEL) appears to be a cheap dividend stock for the TFSA. It has declined 27% in the last 12 months. The latest weakness might have been triggered by lowered guidance. Its latest 2023 outlook is adjusted earnings before interest, taxes, depreciation, and amortization growth of 13-16% and adjusted earnings-per-share growth of up to 5.2%.

Higher interest rates are one dampener for its growth. At the end of the second quarter, Jamieson Wellness’s debt-to-asset and debt-to-equity ratios were 59% and 1.5 times, respectively. Compare these ratios to the pre-pandemic levels of 54% and 1.2 times, respectively, in 2019.

Jamieson Wellness manufactures, distributes, and markets branded natural health products, including vitamins, minerals, and supplements, and it is categorized as a consumer staples stock. So, if it re-sparks growth in the future, it can lead to solid price gains.

At about $26 per share at writing, it trades at a forward price-to-earnings ratio of about 16.4 times. The 12-month analyst consensus price target suggests a whopping upside potential of 59%. The stock is also a Canadian Dividend Aristocrat. In fact, it just increased its dividend by close to 11.8% last month. At the recent quotation, it offers a safe dividend yield of 2.9%.

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 Infrastructure Corp. and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

The Best Canadian Dividend Stocks to Buy and Hold Forever in a TFSA

These Canadian stocks all pay reliable dividends and consistently grow their earnings, making them three of the best to buy…

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $22,000 in 2 TSX Stocks for $1,279 in Passive Income

Passive income doesn't need to be difficult or costly, and these two stocks offer it up in spades!

Read more »

Dividend Stocks

Got $1,000? 3 REITs to Buy and Hold Forever

Do you want some REITs to buy and hold forever? Here’s a look at a trio of options to consider…

Read more »

dividend growth for passive income
Dividend Stocks

Need Decades of Passive Income? 2 Stocks to Buy Without Delay

These two dividend stocks offer it all. Stable passive income, with growth opportunities already on the way.

Read more »

data analyze research
Dividend Stocks

2 Stocks I Loaded Up on in 2024 for Long-Term Wealth

A tech giant and a renewable energy giant were strong picks in 2024 and will continue to be strong through…

Read more »

Workers use a microscope to do medical research in a modern laboratory.
Dividend Stocks

Got $4,000? 4 Healthcare Stocks to Buy and Hold Forever

Consider adding these four healthcare stocks to your portfolio if you have the capital to invest in the stock market…

Read more »

Confused person shrugging
Dividend Stocks

Is Telus Stock a Buy for its 7.5% Dividend Yield?

Telus is up about 10% in recent weeks. Are more gains on the way?

Read more »

top TSX stocks to buy
Dividend Stocks

Top Canadian Stocks to Generate Passive Income in 2025

These TSX stocks pay good dividends that should continue to grow.

Read more »