Dividend stocks are a top choice for starting a consistent passive-income stream. Meanwhile, investors can maximize their income by leveraging their TFSA (Tax-Free Savings Account), as dividends, interests, and capital gains are not taxable within the TFSA.
Therefore, TFSA investors could consider top dividend-paying Canadian stocks from the energy, banking, and utilities sectors to generate a tax-free income. Notably, high-quality dividend companies from these sectors have a resilient business model and growing earnings base, which enables them to pay solid dividends.
Against this backdrop, Enbridge (TSX: ENB), Canadian Utilities (TSX: CU), and Toronto-Dominion Bank (TSX: TD) could be the three fundamentally strong dividend stocks to consider. These companies are known for maintaining their payouts in all market conditions, making them attractive investment options for TFSA investors to earn worry-free income for decades.
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Enbridge
TFSA investors looking to bolster their income portfolios could consider Enbridge for its stellar track record of dividend payments and potential for future growth. This energy infrastructure giant has rewarded its shareholders with uninterrupted dividend growth for 29 years and offers a lucrative yield of 6.9%.
Enbridge generates solid distributable cash flows (DCF) thanks to its diversified asset base and high asset utilization rate. Moreover, the company’s long-term contracts and power-purchase agreements ensure substantial earnings and higher payouts regardless of commodity cycles.
Further, the energy company’s multi-billion secured projects are poised to deliver steady earnings growth in the coming years. Additionally, its investments in conventional and renewable energy assets and strategic acquisitions will accelerate its growth and drive its DCF per share.
Enbridge predicts its earnings and DCF per share will grow at a mid-single-digit rate in the long term, which indicates that the company’s dividend could grow at a similar pace. Further, Enbridge’s dividend payout ratio of 60-70% of DCF is sustainable in the long term.
Canadian Utilities
Canadian Utilities stock is a must-have for your TFSA income portfolio. The utility giant stands out for its uninterrupted dividend-growth history of 52 years. TFSA investors should note that it has the longest track record of growing its annual dividends among all Canadian companies, highlighting the strength of its business model and management’s commitment to enhancing its shareholders’ value.
Its payouts are supported by its low-risk business model, growing rate base, robust earnings, and predictable cash flows. Moreover, the company generates most of its earnings from regulated utility assets, implying its payouts are well-covered. In addition, it offers an attractive yield of 5.4%, near the current price levels.
Going forward, Canadian Utilities is well-positioned to increase its dividends further. The company’s investment in regulated utility assets will likely expand its rate base, driving future profits and dividend payments. Moreover, Canadian Utilities’s focus on optimizing its energy infrastructure capital projects will likely support its earnings and payouts.
Toronto-Dominion Bank
Among the leading Canadian banks, TFSA investors can rely on Toronto-Dominion Bank to earn worry-free passive income. This financial services giant has paid uninterrupted dividends for about 167 years.
Moreover, the bank has raised its dividend at a compound annual growth rate of about 10% since 1998. Besides higher dividends, the bank has a low payout ratio of 40-50%, which is sustainable over the long term. Meanwhile, it offers a healthy yield of 5.1% at the current levels.
Toronto-Dominion Bank’s diversified revenue streams, strong credit quality, and focus on its growing loan portfolio will likely drive earnings and higher dividend payouts. Further, its strategic acquisitions and focus on improving efficiency will continue to boost its financials, in turn boosting dividend payments.
