Dividend stocks can help investors weather the storm of rocky financial markets. Today, there are many to choose from to set yourself up for regular dividend income. Nestled in your tax-free savings account (TFSA) these dividend payments, along with any capital appreciation, are tax-free.
Here are three dividend stocks I’d include in my TFSA today.
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Canadian Natural Resources: A 5.85% dividend yielder
Not only is Canadian Natural Resources (TSX: CNQ) yielding a very solid 5.85%, but it’s also paying out 100% of its free cash flow in dividends. This means that the company will be extending its already very favourable dividend history.
In fact, in the last five years, CNQ’s annual dividend has increased 182% to the current $2.25 per share. This represents a 25.75% five-year compound annual growth rate (CAGR). Today, with the price of oil holding on above $60, shareholders of Canadian Natural can expect continued cash flow in their pockets. I’d include Canadian Natural in my TFSA to make those cash payments tax-free.
With a break-even oil price of approximately $40 and its long-life reserves, Canadian Natural has an ideal profile as a dividend-paying stock. This is because minimal maintenance capital is required for its assets. Now, CNQ’s debt balance has fallen to target levels, prompting the company to begin paying out 100% of its free cash flow to TFSA shareholders.
Manulife: A 4.2% yield
Manulife Financial (TSX: MFC) is a global financial services provider operating in the insurance and wealth management industries. Today, Manulife enjoys unmatched geographic diversification, business mix, and scale. The wealth business has been booming, and Asia has been seeing rapid growth.
As for Manulife’s dividend, it has been one that investors can rely on, making Manulife a good addition to your TFSA. It has grown at a five-year CAGR of 9.78%. In fact, its dividend has increased 57% to the current $1.76, for a current yield of 4.2%. Manulife’s 2024 result was another impressive one that demonstrates the company’s ability to continue to grow its dividend.
Core earnings of $7.2 billion were up 8%, and earnings per share (EPS) increased 11% to $3.87 — more than 5% above expectations. This was driven by record insurance results and a strong 27% increase in core earnings out of Asia.
This strong momentum, as well as the company’s global presence and increasing profitability, are reasons I’d include Manulife in my TFSA.
Peyto: A 7.46% yield
Finally, let’s talk about Peyto Exploration and Development (TSX: PEY), one of Canada’s lowest-cost natural gas producers. Peyto’s dividend has grown at a five-year CAGR of 61.54% to the current $1.32. The stock is yielding a very generous 7.46%. That’s a significant dividend payment that would do well in a TFSA.
This strong dividend performance is backed by Peyto’s top-quality assets, which can be found in one of Canada’s most prolific basins, the Alberta Deep Basin. It’s a basin that’s characterized by a high return production profile, with high recoveries and predictability. These are low-risk assets that do not require much capital intensity. Thus, this means more money for Peyto’s shareholders and its dividend program.
Looking ahead, the natural gas industry is on a strong growth trajectory. Simply put, the North American natural gas industry has been expanding around the globe. This means that the liquified natural gas (LNG) industry is booming, with new and growing LNG facilities coming onstream. For example, LNG Canada is expected to begin shipments in mid-2025. This has created a strong demand for Canadian natural gas.
Peyto is a good addition to a tax-free savings account as its dividends will likely keep growing, and sheltering them from taxes is obviously a good idea.
