TFSA: The 3 Best Canadian Stocks to Buy With Your $7,000 Contribution

If you want dividend stocks, these three are the best Canadian stocks to buy right now. Especially when using your TFSA for passive income.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published October 23, 2024 3:30 pm EDT

When investing your $7,000 Tax-Free Savings Account (TFSA) contribution, it’s crucial to focus on dividend stocks that offer a strong history of payouts, stable growth, and future potential. And today, that’s exactly what we’re focusing on. Each brings unique advantages to your portfolio, from utility stability to real estate income and long-term industrial growth. Let’s explore why these are your best bets this year.

dividend growth for passive income — Source: Getty Images

Hydro One

Hydro One (TSX:H) is a leading utility company in Ontario, primarily dealing with electricity transmission and distribution. As a utility, Hydro One benefits from the consistent demand for energy, making its business model relatively recession-proof. In the most recent earnings report for Q2 2024, Hydro One reported 10.2% year-over-year earnings growth, thus reflecting its strong financial position. The stock’s dividend yield of 2.7% and payout ratio of around 64% show that Hydro One is committed to rewarding investors without overextending its balance sheet. With stable management and a focus on sustainable energy, Hydro One’s long-term growth is underpinned by its essential role in Ontario’s infrastructure.

Granite REIT

If you’re looking for exposure to real estate, Granite REIT (TSX:GRT.UN) is one of Canada’s top industrial real estate investment trusts (REITs). Known for its focus on industrial and logistics properties, Granite REIT has benefited significantly from the rise of e-commerce. In its most recent earnings for Q2 2024, Granite reported 7.6% year-over-year revenue growth, supported by a diversified portfolio across Canada, the U.S., and Europe. With a solid dividend yield of 4.3%, it’s a fantastic income generator. Plus, Granite REIT has a history of increasing its dividends over time, making it a reliable player in the long term, especially with rising demand for industrial real estate spaces.

Canadian National Railway

Canadian National Railway (TSX:CNR) is one of North America’s largest rail networks, offering transportation services for goods across Canada and the U.S. The railway industry is capital-intensive, but CNR has been excellent at maintaining profitability. Its operating margin of over 40% is a testament to its efficiency. In Q2 2024, CNR reported revenue of $17 billion, showcasing its ability to weather economic cycles. The dividend stock offers a dividend yield of 2.2%, with a longstanding history of increasing payouts. Its strong cash flows and strategic infrastructure investments position CNR well for future growth, making it an excellent addition to a long-term TFSA strategy.

Long-term wins

What ties these stocks together is their impressive earnings strength and consistent dividend history. Hydro One’s operating cash flow for the past 12 months was $2.6 billion. Granite REIT has shown resilience with a payout ratio just below 90%. Plus CNR’s payout ratio of 38.8% indicates it has ample room for future dividend increases. These stocks provide the perfect mix of growth and income, ideal for a TFSA’s tax-free benefits.

Looking ahead, all three companies are poised for future success. Hydro One is investing heavily in modernizing Ontario’s electrical grid, which will pay off in the long run. Granite REIT is positioned to benefit from continued demand in logistics and industrial real estate, especially with global supply chains adapting to e-commerce growth. CNR, meanwhile, remains a vital part of North America’s transportation network and is investing in digital technologies to improve operational efficiency – thusly ensuring its place as a long-term growth leader.

Bottom line

All considered, Hydro One, Granite REIT, and Canadian National Railway are three of the best Canadian dividend stocks to maximize your TFSA’s potential in 2024. Each offers a blend of steady dividends, strong financials, and long-term growth prospects, making them ideal for a tax-free investment. With the tax-free growth that comes with a TFSA, these stocks provide the opportunity to build wealth while enjoying a steady stream of income. Investing your $7,000 contribution in these three stocks is a strategic move to capitalize on Canada’s best sectors of utilities, real estate, and transportation.