For investors seeking to build a sustainable income stream, utilizing a Tax-Free Savings Account (TFSA) to hold dividend stocks could be a great strategy. Dividend stocks offer regular payouts that are completely tax-free when held in a TFSA. Doing so could allow you to maximize your income and reinvest dividends without the burden of taxes, which could also boost the chances of compounding your returns over time.
As the Bank of Canada recently announced its decision to slash interest rates for the first time since March 2020, dividend-paying bank stocks could offer attractive opportunities for income-seeking TFSA investors.
In this article, I’ll highlight two top dividend stocks from the banking sector you can add to your TFSA portfolio today and hold for decades to come.
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Bank of Nova Scotia stock
The first dividend stock you may want to consider buying for your TFSA portfolio right now is Bank of Nova Scotia (TSX:BNS), or Scotiabank. Besides Canada and the United States, this Toronto-headquartered bank has a strong presence in Latin America, especially in countries like Mexico and Chile, where it offers a diversified range of financial services. It currently has a market cap of $76 billion as its stock trades at $61.83 per share after declining by 9.5% over the last three months. However, these recent declines have enhanced the appeal of Scotiabank’s annualized dividend yield, which now stands at 6.9%.
Even as the tough macroeconomic environment has affected the demand for financial services in recent quarters, Scotiabank’s total revenue inched up by 5.9% YoY in the last 12 months to $33.2 billion with the help of continued growth in its net interest income and non-interest income. Although higher provisions for credit losses have trimmed its profitability of late, improving the economic environment after the recent interest rate cut in Canada could help it recover fast.
Moreover, the bank’s strong international presence gives it an edge over its peers in terms of diversification and growth opportunities. Given that, you can expect to get stable and growing dividends as well as long-term capital appreciation by buying Scotiabank stock for your TFSA portfolio.
National Bank stock
National Bank of Canada (TSX:NA) could be another solid choice for TFSA investors looking for consistent and growing dividends. The Montréal-based bank currently has a market cap of $36.2 billion as its stock trades at $106.39 per share after rallying by nearly 25% over the last eight months. At this market price, it offers a decent 4.1% annualized dividend yield and distributes these payouts every quarter.
The bank’s revenue surged 7.4% YoY in the last 12 months, while its adjusted earnings rose 4.4% YoY to $9.78 per share. Its ability to continue posting positive growth numbers despite the macroeconomic challenges reflects its strong risk management and operational efficiency.
National Bank already has a strong presence in some of the most profitable markets in Quebec and Eastern Canada. On June 11, the bank announced its intentions to acquire Canadian Western Bank for approximately $5 billion through a share exchange. This deal aligns with National Bank’s strategic plan to expand its footprint and offerings across Canada, which should help its financial growth trend to improve and its share prices soar over the long term.
