If you’re investing in a TFSA, it pays to hold dividend stocks. Dividend stocks are taxed far more frequently than stocks that don’t pay dividends, unless you’re trading frequently. It’s generally not a good idea to trade frequently, so we can say that dividend stocks are taxed more frequently than non-dividend stocks in practice. So you ought to prioritize your dividend stocks for your TFSA. In this article, I explore five dividend stars that will help you take full advantage of your TFSA.
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TD Bank
The Toronto-Dominion Bank (TSX: TD) is Canada’s second biggest bank stock, with a 5% dividend yield. It is among the cheapest of the large North American banks, trading at around 11 times earnings.
TD stock got cheap because it took a $3 billion fine last year. It also had its U.S. Retail assets capped by U.S. regulators. The bank should be able to deliver decent earnings this year despite the asset cap, as segments other than US retail were not affected by said cap. It is using money raised from selling US assets to fund buybacks. That seems like a positive.
Fortis
Fortis Inc (TSX: FTS) is a Canadian utility that has the status of a “Dividend King,” having raised its dividend every year for 51 consecutive years. Over the last 10 years, Fortis shareholders have earned an 8.4% compounded annual (CAGR) rate of return. Past performance doesn’t predict future performance, but Fortis still has many of the advantages that powered its superior results in the past. For example, its payout ratio is comfortably below 100%, and its debt-to-equity ratio is relatively modest for a utility.
Enbridge
Enbridge Inc (TSX: ENB) is a Canadian pipeline stock that is well known for its high dividend yield, which is currently 6.3%. The company has not done a whole lot of growth over the last five years. In that period, its revenue increased only 1.3% per year, and its earnings actually declined. On a brighter note, its free cash flow did increase by 15% per year over the period. Enbridge’s high yield is not the best reason to make it one’s biggest position, but it is a legitimate enough company to merit inclusion in a diversified portfolio.
Suncor Energy
Suncor Energy Inc (TSX: SU) is a Canadian energy stock that sports a 4% dividend yield. The company is an integrated oil and gas firm, meaning it is involved in production, transportation, and refining. It operates its own gas station chain called Petro-Canada. This diverse set of business activities means that Suncor profits at every stage of the oil and gas lifecycle. Profit it has, with a 12% net margin and a 15% free cash flow margin in the trailing 12-month period. The company’s earnings compounded at 20% and its FCF at 26% over the last five years.
CN Railway
The Canadian National Railway (TSX: CNR) is a Canadian railroad stock that is a vital part of North America’s transportation infrastructure. Its dividend yield, 2.4%, is not that high, but the five-year growth rate (about 10%) has been high. CNR is highly profitable, with a 26% net margin and a 15% free cash flow margin. It hasn’t grown as much as Suncor has over the years, but it has always been very profitable.
