The Canadian government introduced Tax-free Savings Accounts (TFSA) in 2009 to encourage Canadians to save more. They allow Canadians above 18 years to earn tax-free returns upon a specified amount called contribution room. For this year, the contribution room is $7,000, while the cumulative amount for investors who were 18 years and above in 2009 stands at $102,000. Against this backdrop, let’s look at three cheap dividend stocks that are ideal additions to your TFSA.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is a dividend stock well-suited for your TFSA due to its consistent dividend payments, high yields, and healthy growth prospects. The Toronto-based financial services company operates across North and South America and earns revenue from diverse segments, thus delivering healthy and stable cash flows. These solid cash flows have allowed the company to pay dividends consistently since 1833. It currently pays a quarterly dividend of $1.06/share, translating into a forward dividend yield of 5.8%.
Moreover, BNS is working on improving the profitability of its international banking business and has recently signed an agreement to transfer its Colombia, Costa Rica, and Panama operations to Davivienda in exchange for 20% of the combined entity. This transaction would improve its CET1 (common equity tier-one) by 10–15 basis points amid a decline in risk-weighted assets. Further, the company has also made a strategic investment in KeyCorp, which could allow it to increase its capital deployment in a high-growth United States market. Considering all these factors, I believe BNS’s growth prospects look healthy. Besides, the company trades at an attractive NTM (next 12 months) price-to-earnings multiple of 10.4, making it an ideal buy.
Telus
Telus (TSX: T) has an impressive record of rewarding its shareholders with consistent dividend growth and share repurchases. Given its solid recurring revenue stream and healthy cash flows, the Vancouver-based telecom company has paid $21 billion in dividends and repurchased shares worth $5 billion since 2004. Moreover, it has raised its dividends 27 times since May 2014 and currently offers a juicy dividend yield of 7.7%.
Meanwhile, the telecom sector has been under pressure over the last three years due to unfavourable policy changes and higher interest rates. Amid this broader weakness, the company trades at a 40% discount to its 2022 highs, while its NTM price-to-sales multiple stands at an attractive 1.5.
Moreover, Telus’s expanding 5G and broadband infrastructure, new spectrum acquisitions, and attractive bundled offerings continue to expand its customer base. Also, falling interest rates and its emphasis on cutting costs and improving efficiency could drive its profitability in the coming years. Considering all these factors, I believe Telus would be a worthy addition to your TFSA.
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is a Canadian oil and natural gas producer with a balanced and diversified asset base. Given its large, low-risk, high-value reserves, low capital reinvestment requirements, and effective and efficient operations, the company generates stable and healthy cash flows, allowing it to raise its dividends consistently. For the previous 25 years, it has raised its dividends at an annualized rate above 21% and currently offers an attractive dividend yield of 4.8%.
Moreover, the Calgary-based energy company plans to invest around $6 billion this year to expand its asset base and boost production. Meanwhile, the management projects its total production to grow by 12% this year amid organic growth and the acquisition of the AOSP (Athabasca Oil Sands Project) and Duvernay assets. Moreover, oil prices have strengthened this year and could remain elevated in the near term amid Donald Trump’s push for energy independence, which could initially tighten the oil market. Considering its healthy growth prospects, CNQ could continue its dividend growth. Moreover, the company trades at a 21.8% discount compared to its 52-week high, offering an excellent buying opportunity.
