The TFSA (Tax-Free Savings Account) contribution limit was increased to $6,500 in 2023. That is an 8% jump from 2022.
That means TFSA investors can invest an additional $6,500 into Canadian stocks completely tax-free. Investors still have several months left in the year to invest this money. If you are looking for some stocks with income and decent value, here are three to buy with $6,500 today.
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Cenovus Energy stock: A free cash flow waterfall
While oil recently took a step back in the past few days, it has been heading on a nice upward trajectory this year. That bodes very favourably for TSX energy stocks.
One stock that I like in particular is Cenovus Energy (TSX: CVE). It is one of Canada’s largest integrated energy producers. It has oil sands, conventional, offshore oil, and refinery operations across North America.
Its refining operations are really starting to ramp up with strong utilization. Likewise, with very long-term production assets, it continues to steadily increase oil production.
With the WCS (Western Canadian Select) differential expected to narrow (especially after the Trans Mountain Pipeline comes into service next year), Cenovus should only see free cash flow continue to rise.
In the meantime, the company has been generous to shareholders with rich share buybacks, steady debt reduction, and solid dividend increases. At only seven times free cash flow and a 2% yield, this stock continues to look attractive.
Canadian National Railroad stock: Beat up but not forever
Canadian National Railway (TSX: CNR) is starting to look intriguing as a value and income play. Today, its stock is trading with a price-to-earnings (P/E) ratio of 19, which is below its five-year average and the lowest it has been in three years.
Certainly, the railroads have faced challenges from weather to strikes to a slowing economy. Yet, over long periods of time, Canadian railroads tend to perform very well.
Why? There are only two major railroads in Canada, and they dominate their individual routes and markets. Likewise, railroads tend to have very good pricing power that enables them to raise rates over their costs and the rate of inflation.
While CN may struggle from some tough comps and a weakening economy, it will be quick to rise when things turn around. CN has an incredible network that is impossible to replicate.
If you don’t mind being a contrarian, now may be a perfect time to buy. It helps that it yields 2.15% today and has an excellent history of strong annual dividend growth.
Brookfield Asset Management: Buy the dip
Speaking of dividends, Brookfield Asset Management (TSX: BAM) looks intriguing after the recent selloff. Over the past few days, the stock has lost about 10% of its value. This stock is yielding 3.8% right now.
BAM is one of the premier alternative asset managers in the world. The company provides funds and investment strategies in everything from real estate to infrastructure to private equity to private credit. Most of its funds are long term, so its earnings and earnings growth is predictable. It expects great opportunities from its credit and private equity franchises as the economy/market becomes more depressed.
BAM has no debt and a straightforward balance sheet. It plans to distribute 90% of distributable earnings back to shareholders. Right now, it predicts growing distributable earnings by 15-20% annually for the next several years. That means dividends could follow by the same measure.
