The TFSA (tax-free savings account) allows investors to earn tax-free returns, including capital gains and dividends, on a specified amount called contribution room. For this year, the contribution room stands at $7,000, with its cumulative value at $95,000. With high inflation eating into their pockets, investors can minimize the impact by earning a stable passive income by investing in high-quality dividend stocks.
Meanwhile, here are four top dividend stocks you can add to your TFSA to boost your passive income.
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Enbridge
Enbridge (TSX:ENB) is a midstream energy company with a solid presence in the natural gas utility and renewable energy businesses. Given its highly contracted business, the company’s cash flows are stable and predictable, irrespective of the macro environment. Supported by healthy cash flows, the company has been paying dividends for 69 years and has also raised its dividends for the previous 29 years at a CAGR (compound annual growth rate) of 10%.
Besides, Enbridge continues to expand its asset base with a $25 secured capital program and strategic acquisitions. It has acquired two natural gas utility assets in the United States from Dominion Energy and is working on closing the third deal. These acquisitions could lower Enbridge’s business risk amid increased contributions from low-risk utility assets, thus making its future dividend payouts safer. Besides, its forward dividend yield of 7.5% makes it an excellent buy for income-seeking investors.
Fortis
Fortis (TSX:FTS) is another top dividend stock to have in your TFSA due to its stable cash flows and consistent dividend growth. Given its highly regulated asset base, the utility company’s financials are less susceptible to market volatility. It has delivered an average total shareholder return of 10.1% for the last 20 years, outperforming the broader equity market. It has also raised its dividends uninterruptedly for 50 years, with its forward yield at 4.33%.
Meanwhile, the company has also planned to make a capital investment of $25 billion from 2024 to 2028. These investments could grow its rate base at an annualized rate of 6.3% to $49.4 billion by 2028. With the company expecting to meet 66% of its funding from the cash generated from its operations and equity offerings, these investments will not substantially raise its debt levels. Besides, given its growth prospects, the company’s management hopes to increase dividends at a 4 to 6% CAGR through 2028.
Telus
Although the telecom sector has been under pressure over the last two years amid higher interest rates and unfavourable regulatory policies, I have picked Telus (TSX:T) as my third pick. Digitization and increased remote working and learning have created long-term growth potential for telcos. Meanwhile, Telus continues strengthening its infrastructure, with its 5G services covering 86% of the country’s population and PureFiber connecting 3.2 million homes.
Supported by its bundled offerings and consistent execution, the company’s customer base continues to expand, while its postpaid mobile phone churn rate stood at 0.91%. Further, its other growth verticles, TELUS International, TELUS Health, and TELUS Agriculture & Consumer Goods, could continue to boost its financials in the coming years. Given its healthy growth prospects, Telus’s management expects to raise dividends at an annualized rate of 7 to 10% through 2025. Meanwhile, it currently pays a quarterly dividend of $0.3891/share, with its forward yield at 7.4%.
Bank of Nova Scotia
My final pick would be the Bank of Nova Scotia (TSX:BNS), which has consistently paid dividends since 1833. Besides, the company has raised its dividends at an annualized rate of 6% since 2010. It currently offers a forward dividend yield of 6.6%. The Bank of Canada has already cut its benchmark interest rates by 25 basis points. However, the United States Federal Reserve has yet to follow suit. With inflation showing signs of easing, the Federal Reserve could cut interest rates later this year. Lower interest rates could boost economic activity, thus driving credit demand and benefiting BNS.
Meanwhile, BNS is profitable, and its capital position looks healthy. So, it is well-equipped to ride out economic turbulence. Besides, the company has changed its strategy to shift its focus away from South America to Canada, the United States, and Mexico, which could stabilize its financials.
