The Tax-Free Savings Account (TFSA) can be a great place to stash the right dividend stocks and start a reliable, tax-free passive income.
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A bank stock
Toronto-Dominion (TSX: TD) has the distinction of being the second-largest Canadian bank by market cap and the top Canadian bank in a number of avenues. It has a massive local and U.S. presence and strong fundamentals.
Its performance has historically been comparable to that of the largest bank in Canada, but the last couple of years haven’t been good for this stock. Since hitting its peak in 2022, the stock has steadily gone down, and it’s currently trading at a 27% discount.
This slump stands out more because other major banks are presently strongly bullish. However, one significant benefit of this slump is that the yield has been pushed to an attractive level (5.3%).
An energy stock
Enbridge (TSX: ENB) is one of the most confident dividend picks, not just from the energy sector but also from the TSX as a whole. It has a stable business model thanks to midstream (pipeline services) and natural gas utility, both of which promise relatively stable revenues. Then there is its stellar dividend history: 29 consecutive years of growth.
A good time to buy this stock would have been early 2024, when the yield was much higher than it is now. But at 6% yield, it’s still one of the most generous Dividend Aristocrats currently trading on the TSX right now.
A financial stock
While banks are among the most coveted dividend picks in the financial sector, First National Financial (TSX: FN) is another stock worth considering. It’s one of the largest mortgage companies in Canada that aren’t banking institutions and has a diversified portfolio of mortgages totalling $143.5 billion.
From a performance perspective, the stock has been modest at best, but it’s a robust dividend stock. It has grown its payouts for 11 consecutive years and is now offering a juicy 6.3% yield, backed by a payout ratio of 81.2.
A utility stock
If you are looking for a solid combination of safety and decent yield, Canadian Utilities (TSX: CU) is an easy choice. It’s the oldest Dividend Aristocrat in Canada and has climbed to the rank of Canada’s first Dividend King after growing its payouts for 50 consecutive years. The utility business itself provides a significant layer of safety for its dividends.
Thanks to the 17% discount the stock trades at, the yield has increased, but not by a massive margin. Still, the 5.3% yield it offers is quite decent for a dividend stock of its pedigree. It’s also modestly valued, and you may benefit from some growth as well if it makes a recovery.
A REIT
CT REIT (TSX: CRT.UN) is one of the few REITs that have risen to the rank of aristocrats because, despite being generous with their yield, many REITs tend to be slightly inconsistent with their payouts. CT REIT is different, not just because of its history but also because of its symbiotic relationship with Canadian Tire, its most significant client.
Along with this business model safety and ten consecutive years of dividend growth comes the generous 6.4% yield. It also pays monthly dividends, making it great for passive income from a frequency perspective.
Foolish takeaway
The five blue-chip stocks will be perfect in your TFSA if your goal is to start a healthy and reliable passive income. Some of these are also well-positioned for modest, long-term growth or at least stability, so your capital would be safe as well.
