Investing in high-quality dividend stocks via a TFSA (Tax-Free Savings Account) can significantly enhance long-term returns. This strategy enables investors to generate tax-free passive income and capital gains.
While the TSX has various stocks that offer dependable dividends, TFSA investors could consider Canadian stocks like BCE (TSX: BCE), Enbridge (TSX: ENB), and Scotiabank (TSX: BNS) to earn tax-free dividends. These companies have strong fundamentals and a resilient business model that consistently generates solid earnings to support their distributions. Moreover, they have sustainable dividend payouts and are committed to returning higher cash to their shareholders.
What stands out is that they offer lucrative yields of up to 9%, which increases their appeal among investors.
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BCE
TFSA investors looking for rock-solid dividend payers with high yields could consider BCE stock. The telecom company’s services are deemed essential for the economy, thus adding an extra layer of protection to its earnings and dividend payouts.
The telecom giant has enhanced its dividends for 16 consecutive years and remains committed to increasing its dividend distributions in the future. The company announced a dividend hike of 3.1% for 2024. It pays a quarterly dividend of $0.998 per share, resulting in an impressive yield of about 8.6% based on the closing price of $46.64 on June 10.
This wireless and internet service provider is focused on improving its efficiency through business transformation and cost-reduction initiatives. These initiatives will enable BCE to deliver profitable growth and higher dividend payments. Further, BCE’s focus on capitalizing on high-growth avenues such as digital shift and cloud and security services augur well for growth.
In addition, the company is leveraging its leading broadband networks and products to drive its user base, which will support its financials and quarterly distributions.
Enbridge
Enbridge is another lucrative, high-yield dividend stock TFSA investors could consider. This Canadian energy infrastructure giant is known for its stellar dividend-growth history, resilient business model, and ability to grow earnings and distributable cash flows (DCF) in all market conditions.
The company’s diversified revenue stream, power-purchase agreements, and long-term contracts consistently drive its DCF per share, supporting its dividend payouts. Enbridge has increased its dividend for 29 consecutive years at a CAGR (compound annual growth rate) of 10%. Further, it offers a compelling yield of 7.5% based on its closing price of $49.08 on June 10.
In the long term, the energy giant could increase its dividends at a low- to mid-single-digit rate as its earnings per share and DCF per share are projected to grow at a CAGR of approximately 5%. Further, Enbridge’s payouts are well-covered and sustainable in the long term.
Scotiabank
TFSA investors could consider adding Scotiabank stock to their portfolios. This leading Canadian bank has consistently paid dividends since 1833 and raised them over time. For instance, Scotiabank’s dividends have grown at a CAGR of 6% in the last 10 years, reflecting its ability to grow earnings regardless of market conditions.
The financial services giant pays a quarterly dividend of $1.06 per share and offers an attractive yield of 6.6%.
Scotiabank’s exposure to high-growth markets, focus on diversifying its revenue streams, improving efficiency, and solid balance sheet will likely fuel its earnings and drive payouts. Further, Scotiabank stock is trading at a forward price-to-earnings multiple of 9.9 and a price-to-book value ratio of one, which is much lower than its peers. Thus, it offers significant value to investors near the current levels.
