Canadian savers are wondering where to invest their Tax-Free Savings Account (TFSA) contributions in 2025 as stock markets decline and rates offered on Guaranteed Investment Certificates (GICs) are lower than last year.
Dividend stocks
The recent market rout is a good reminder that stock prices can be volatile. In this type of environment, it makes sense to look for companies that are solid market leaders with good track records of increasing dividends during difficult economic times.
Buying dips takes courage and requires the patience to ride out additional potential downside. The benefit is the ability to secure a better dividend yield and to position the portfolio for decent capital gains on a recovery.
Enbridge (TSX:ENB) is a good example of a top Canadian dividend stock with a long history of distribution growth. The board has increased the dividend in each of the past 30 years. Ongoing dividend expansion should be in the 3% range over the medium term, which is in line with anticipated growth in distributable cash flow.
Enbridge has a $26 billion capital program on the go that will boost revenue as assets are completed and go into service. In 2025, the company will also get the full benefit of its acquisition of three U.S. natural gas utilities last year for US$14 billion.
Enbridge trades near $57 per share at the time of writing. The stock is up 19% in the past year but is off the 12-month high above $65.
Investors who buy ENB stock at the current level can get a dividend yield of 6.6%.
Fortis (TSX:FTS) is another stock to consider during uncertain economic times. The Canadian utility owns and operates natural gas distribution utilities, power generation facilities, and electricity transmission networks. Nearly all the revenue comes from rate-regulated assets. This means cash flow tends to be predictable and reliable. Homeowners and businesses need to keep the lights on and heat their buildings, so demand for power and natural gas should hold up, even during a recession.
Fortis hasn’t completed a major acquisition for several years, but the company is busy working through its own $26 billion capital program that is expected to boost the rate base from $39 billion in 2024 to $53 billion in 2029. This should support planned annual dividend increases of 4% to 6% over five years. Fortis raised the dividend in each of the past 51 years, so investors should be comfortable with the guidance. At the time of writing, Fortis provides a dividend yield of 4%.
GICs
Investors who don’t want to take on any capital risk in their TFSA can still get GIC rates between 3% and 3.5% from many institutions, depending on the terms. This is still above the current rate of inflation, so it is an option worth considering for at least some of the portfolio.
The bottom line on top investments for a TFSA
Ongoing volatility should be expected Investors need to be able to handle the turbulence if they plan to buy dividend stocks instead of GICs for their TFSA. However, the market pullback offers good dividend yields right now for income investors and a shot at decent capital upside on a rebound.
