A proven strategy for generating market-beating returns is to invest in fundamentally strong dividend stocks. Quality dividend stocks enable shareholders to begin a passive-income stream at a low cost and benefit from long-term capital gains. Moreover, if these investments are held in a Tax-Free Savings Account (TFSA), Canadians will benefit from tax-free returns for life.
In this article, I have identified two blue-chip dividend stocks that TFSA investors should buy right now.
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Is this TSX dividend stock a good buy?
The first TSX stock on the list is Royal Bank of Canada (TSX:RY), which is valued at a market cap of $244 billion. Royal Bank of Canada has increased its annual dividend per share from $3.08 in 2015 to $5.6 in 2024.
It remains a top investment in 2025 due to its strong financials, diversified earnings, and management’s commitment to returning capital to shareholders. The bank announced a 4% quarterly dividend increase to $1.62 per share in the second quarter (Q2), reflecting confidence in sustainable earnings growth.
RBC’s diversified business model provides defensive characteristics essential for dividend sustainability. The bank generated strong pre-provision, pre-tax earnings of nearly $7 billion in Q2, driven by solid performance across its Personal Banking, Commercial Banking, Wealth Management, and Capital Markets segments.
This diversification creates stable cash flows that support dividend payments through various economic cycles. RBC’s balance sheet strength underpins dividend security, with a robust common equity tier-one ratio of 13.2%, well above regulatory minimums, translating to $5 billion in excess capital.
This financial fortress enables the bank to maintain dividend payments even during challenging periods while funding organic growth and strategic acquisitions like HSBC Canada.
Management’s capital allocation strategy prioritizes shareholder returns, evidenced by the announced normal course issuer bid to repurchase up to 35 million shares alongside dividend increases.
The bank’s conservative approach to risk management, including prudent reserve building during uncertain times, demonstrates discipline that protects the long-term sustainability of its dividend.
RBC’s leading market positions in Canadian banking provide defensive moats and stable funding through core deposit growth of 13% year over year. Strong performance in fee-based businesses, such as Wealth Management, which reported 11% earnings growth, diversifies revenue streams beyond traditional banking.
In the last 10 years, RBC stock has returned 228% to shareholders after adjusting for dividend reinvestments.
The bull case for the TSX stock
Canadian National Railway (TSX:CNR) is another top TSX stock that has delivered outsized gains to shareholders. In the last 10 years, CNR stock has returned 133% to shareholders in dividend-adjusted gains.
In the last 29 years, the blue-chip TSX stock has increased its dividend at an annual rate of 15%, which is exceptional. CN’s dividend reliability stems from its essential role in North America’s transportation infrastructure.
The company operates nearly 20,000 miles of track spanning from the Pacific to the Atlantic coasts in Canada and extending to the U.S. Gulf Coast, creating a unique tri-coastal network that provides natural competitive advantages and pricing power. This critical infrastructure moves approximately 15,000 shipments daily, including grain, raw materials, and energy commodities essential to the economy.
The railway’s resilient business model generates consistent cash flows, supporting the sustainability of its dividend. CN’s disciplined capital allocation strategy prioritizes reinvestment in the business while maintaining strong shareholder returns.
Over the past five years, it has returned almost $23 billion to shareholders through dividends and share buybacks while maintaining an investment-grade credit rating.
CN has increased its annual dividend per share from $1.25 in 2015 to $3.38 in 2024. Analysts estimate its annual payout to rise to $4.75 per share in 2029.
