Canadians can use their Tax-Free Savings Account (TFSA) limit to build diversified portfolios of investments to meet their retirement goals. A TFSA is useful for anyone who wants to get tax-free income in retirement to complement earnings from other sources, including Canada Pension Plan (CPP), Old Age Security (OAS), Registered Retirement Savings Plans (RRSPs), and work pension plans.
One popular TFSA strategy to build savings involves owning top TSX dividend stocks and using the dividends to acquire new shares to harness the power of compounding.
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Fortis
Fortis (TSX: FTS) is a good example of a dividend-growth stock that can help investors build TFSA wealth. The company has increased the dividend annually for 51 consecutive years and plans to raise the distribution by 4-6% per year through at least 2029.
Fortis grows through strategic acquisitions and development projects. The current $26 billion capital program is expected to boost the rate base from $38.8 billion in 2024 to $53 billion in 2029. As the new assets are completed and go into service, the jump in revenue and cash flow should support the dividend growth. Investors who buy Fortis at the current price can get a dividend yield of 3.95%.
Fortis offers investors a 2% discount on shares purchased under the dividend-reinvestment plan (DRIP).
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) recently raised its dividend for the 25th consecutive year. The energy giant stands out among its oil and gas peers for its reliable dividend growth through the volatility of energy prices.
CNRL’s secret lies in its diversified assets. The company owns oil sands, conventional heavy oil, conventional light oil, offshore oil, natural gas liquids, and natural gas production sites. Management is adept at quickly moving capital around the portfolio to take advantage of opportunities in the commodity markets.
CNRL has a strong balance sheet, and its $100 billion market capitalization gives the company the financial firepower to make large strategic acquisitions in the Canadian energy sector. Investors who buy CNQ stock at the current level can get a dividend yield of 4.75%.
TD Bank
TD Bank (TSX: TD) is arguably a contrarian pick right now. The stock has underperformed its large Canadian peers in 2024 due to troubles in its American business. TD was recently hit with fines of roughly US$3 billion for not having adequate systems in place to identify and prevent money laundering through some U.S. branches. Regulators have also placed an asset cap on TD’s American operations. This means TD’s growth strategy in the U.S. is effectively on hold.
Near-term headwinds are expected until TD’s new incoming chief executive officer sorts out a new growth strategy over the medium term for the bank. Investors need to be patient, but you get paid a solid 5.2% dividend yield at the current share price to wait for a turnaround plan to emerge.
The bottom line on top stocks for a TFSA
Fortis, Canadian Natural Resources, and TD pay attractive dividends and have good track records of delivering solid long-term total returns. If you have some cash to put to work in a self-directed TFSA retirement portfolio, these stocks deserve to be on your radar.
