Investing in top dividend stocks through a Tax-Free Savings Account (TFSA) has been a smart strategy for generating worry-free, tax-free passive income since 2009. This is because dividends, capital gains, or interest are exempt from tax in a TFSA, thereby enhancing overall returns.
With this background, let’s look at the three Canadian stocks worth buying and holding in a TFSA for worry-free passive income. These fundamentally strong companies have stable businesses and a growing earnings base, enabling them to reward their shareholders with higher dividend distributions consistently. Moreover, these stocks offer attractive yields.
Source: Getty Images
TFSA dividend stock #1
Telus (TSX: T) is known for its consistent payouts and high yield, making it a top choice for TFSA investors looking to earn worry-free passive income. Canada’s leading wireless service provider has consistently rewarded its shareholders through its multi-year dividend-growth program. For instance, it has paid about $21 billion in dividends in the past two decades and raised its dividend 27 times in the past 14 years.
Notably, the telecom giant recently raised its quarterly dividend by 7%. Meanwhile, it expects its annual dividend to increase by 7-10% from 2023 through 2025. Further, it has a payout ratio of 60-75% of free cash flow, which implies its dividend distributions are sustainable in the long run. Telus also offers an attractive yield of 7.3%.
The telecom giant’s durable payouts reflect its ability to deliver profitable growth driven by significant broadband network investments. It is investing in expanding its PureFibre Network and 5G infrastructure and leveraging artificial intelligence (AI), which bodes well for future growth.
Telus also focuses on high-growth segments such as cybersecurity and digital transformation, which will likely boost its financials and accelerate its growth. Further, its growing customer base and focus on increasing average revenue per user, reducing the churn rate, and lowering costs will continue to support its earnings, driving higher payouts.
TFSA dividend stock #2
TFSA investors could consider TC Energy (TSX: TRP) stock for its stellar dividend growth and payments. The energy infrastructure company has consistently raised its dividend since 2000 at a CAGR of 7%. The company’s resilient business model, led by its highly regulated and contracted assets, supports its payouts, making it a reliable dividend stock for steady and growing passive income. TC Energy stock also offers a healthy yield of 5.6%.
TC Energy is well-positioned to consistently pay and increase its dividend by 3-5% annually in the coming years. Its long-term contracts and regulated asset base will likely generate low-risk earnings and cash flow and support future payouts.
The energy company is set to benefit from higher system utilization, a secured capital program, and growing demand for natural gas, power, and energy solutions. Further, the company’s focus on productivity savings and debt reduction will fuel its earnings and cash flows, enhancing its shareholder value through higher payouts.
TFSA dividend stock #3
TFSA investors can also consider the top Canadian banking stocks for worry-free income. These financial services giants have a proven record of consistently distributing dividends for more than a century. Scotiabank (TSX: BNS) is an appealing choice among the leading Canadian banks due to its lucrative yield.
Notably, this financial services giant has consistently paid dividends since 1833 and raised them at a CAGR of 6% since 2013. Moreover, it offers an attractive yield of 5.4%.
Scotiabank’s solid dividend history reflects its ability to grow earnings across various market conditions. The financial services company’s diversified revenue streams, exposure to high-growth markets, growing loans and deposit base, steady credit performance, and improved operational efficiency boost its earnings and support its dividend payouts.
Scotiabank’s solid earnings base and conservative payout ratio imply that its payouts are sustainable in the long term.
