Canadian pensioners have plenty of avenues to generate income in their retirement. Pension programs like the Canada Pension Plan (CPP) and Old Age Security (OAS) offer a degree of security for pensioners by covering a sizeable portion of their monthly retirement income requirements. However, these pensions are designed to cover only a part of their retirement income.
To cover the rest, Canadian pensioners must identify ways to earn returns on their savings. Considering the consistently rising cost of living, they must find ways to grow their retirement income without increasing their tax bills. One of the best ways to achieve this is by creating a self-directed income stream within their Tax-Free Savings Accounts (TFSA).
Despite the recent upward momentum in the Canadian stock market, several high-quality dividend stocks continue to trade at attractive levels. By identifying and investing in the right dividend stocks, you can lock in higher-than-usual dividend yields and grow your wealth in a TFSA through capital gains in the long run without incurring income or capital gains taxes.
Today, I will discuss two high-quality but defensive dividend stocks you can add to your self-directed portfolio for this purpose.
BCE
BCE (TSX:BCE) is the $46.94 billion market capitalization industry leader in the Canadian telecommunications sector. The company is a massive wireless and internet service provider that holds almost a third of the Canadian market share. It is also the leading provider of 5G technology and is paving the way for the growth of the industry in Canada.
Higher borrowing costs due to high interest rates have impacted its cash flows, but the business consistently generates substantial revenues due to the essential nature of its services. As of this writing, BCE stock trades for $51.45 per share. Down by 21.64% from its 52-week high, it distributes shareholders’ quarterly payouts at an inflated 7.52% dividend yield that you can lock in today.
Telus
Telus (TSX:T) is another major player in the Canadian telecommunications space. The $34.13 billion market capitalization giant is also one of the Big Three wireless service providers in Canada, accounting for almost a similar market share as BCE stock.
Recent years have seen Telus bring fibre internet to the homes of an increasing number of customers, upgrading its legacy copper network infrastructure to improve its services.
2023 has been a tough year for Telus stock as well, owing to the rising interest rates. As of this writing, Telus stock trades for $23.46 per share, down by 19.10% from its 52-week high. At current levels, it pays its investors at a juicy 6.41% dividend yield.
If interest rates come down in 2024 as expected, lower borrowing costs can help the company improve its margins, and its stock can recover to better share prices.
Foolish takeaway
Dividend investing is one of the best ways to use stock market investing to generate a passive income. By building and growing a portfolio of high-quality and reliable dividend stocks in your TFSA, you can set yourself up for a significant boost to your retirement income without incurring additional taxes.
BCE stock and Telus stock can be excellent foundations for building such a self-directed income portfolio in your TFSA.
