Investors looking for steady and tax-free passive income could leverage the TFSA (Tax-Free Savings Account) to invest in top dividend-paying companies. In a TFSA, dividends and capital gains are not taxed, making it a solid investment channel for maximizing returns in equities.
Against this backdrop, let’s look at two fundamentally strong Canadian stocks that investors could consider adding their TFSA in September.
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Dividend stock #1
TFSA investors planning to earn a stable passive income could consider investing in high-quality companies within the Canadian utility sector. Thanks to their regulated earnings base, Canadian utility companies have a reputation for delivering consistent dividends. Fortis (TSX: FTS) is a top stock in this space, known for its impressive track record of dividend payments and visibility over future growth.
Fortis has consistently increased its dividend for over 50 years. Its impressive dividend payouts are backed by a defensive business model, predictable cash flows, and a growing rate base. Since Fortis derives all its earnings from resilient regulated utility businesses, its quarterly payouts are well covered.
Fortis plans to invest $25 billion in capital projects, aiming to grow its rate base by approximately 6.3% annually through 2028. This will expand its rate base to $49.4 billion by 2028, up from about $37 billion in 2023. Notably, this growth in its regulated assets will further strengthen its earnings potential and support higher dividend payments.
The company projects its dividends to grow by 4-6% annually through 2028. Further, it offers a worry-free yield of about 3.9% near the current price levels.
In summary, Fortis is an ideal investment for TFSA investors looking to secure a stable and tax-free passive income.
Dividend stock #2
TFSA investors can rely on top energy companies to generate tax-free income in addition to utility stocks. Notably, leading Canadian energy companies are known for their dependable dividend payments and growth potential, which makes them perfect investment options for earning passive income. Within the energy sector, Canadian Natural Resources (TSX: CNQ) stands out for its reliable payouts and ability to grow dividends faster than most of its peers.
Canadian Natural Resources has increased its dividends for an impressive 24 consecutive years, with a compound annual growth rate (CAGR) of 21%. Currently, it offers a solid dividend yield of 4.66%, making it a great addition to any income-focused portfolio.
This consistent growth in dividends highlights the company’s commitment to rewarding shareholders, making it an appealing option for those seeking a dependable income stream.
Besides solid dividend distribution, the oil and gas company offers stellar capital gains. Its stock delivered an above-average return and has surged about 272% in the last five years.
Looking ahead, Canadian Natural Resources is well-positioned for continued growth. The company’s diversified asset base, high-value reserves, and low maintenance costs will support its earnings and cash flows. Additionally, the company’s disciplined capital allocation strategy and strong balance sheet will enable it to invest in growth initiatives and drive future dividend payments.
