Investing through a Tax-Free Savings Account (TFSA) provides investors with significant tax benefits. However, amid the ongoing volatility in equity markets, it’s crucial to choose stocks prudently. Therefore, rather than chasing high-yield stocks, investors should prioritize quality companies with strong fundamentals, robust cash flows, and a proven track record of consistent dividend payments. Against this backdrop, let’s look at my three top picks.
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Enbridge
One of the top dividend stocks to have in your TFSA is Enbridge (TSX: ENB), which enjoys healthy cash flows from regulated and long-term take-or-pay contracts. The energy infrastructure company transports oil and natural gas across North America through its extensive pipeline network, operating under tolling frameworks and take-or-pay agreements. It also manages low-risk natural gas utility operations and renewable energy assets supported by long-term power purchase agreements. Therefore, the company’s financials are less prone to economic cycles and commodity price fluctuations, thereby generating stable and predictable cash flows.
Backed by strong cash flows, Enbridge has maintained uninterrupted dividend payments for 70 years and has increased its dividend at an annualized growth rate of 9% since 1995. Also, its forward dividend currently stands at a healthy 5.4%. Moreover, the energy infrastructure firm is growing its asset base with an annualized investment of $9 billion to $10 billion. Additionally, its financial position has also improved, with its net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) falling from 5 at the beginning of this year to 4.7 by the end of the second quarter. Meanwhile, the management expects its EBITDA and discounted cash flow/share to grow in mid-single digits in the coming years, thereby making its future dividend payouts safer.
Telus
Second on my list would be Telus (TSX: T), which has raised its dividend 28 times since launching its dividend growth program in May 2011. Despite the telecom sector facing headwinds over the past few years, the company has continued to grow its dividend, supported by steady cash flows from its subscription-based services. It currently offers a forward dividend yield of 7.6%.
Moreover, as more businesses digitize their processes and the number of remote workers and learners grows, the demand for telecommunication services is rising, thereby expanding the addressable market for Telus. The company plans to invest approximately $70 billion over the next five years to expand its 5G and broadband infrastructure. Additionally, its telehealthcare division, Telus Health, continues to drive its financial performance through strategic investments, product innovation, and the strengthening of its sales channels. Amid these growth initiatives, Telus’s management expects to raise its dividend by 3–8% annually through 2028, thereby making it an excellent buy.
Bank of Nova Scotia
Another top Canadian stock that I believe would be an ideal addition to your TFSA is the Bank of Nova Scotia (TSX: BNS), providing a wide array of financial services in more than 50 countries. Given its diversified revenue sources, the Big Six bank enjoys healthy and reliable cash flows, allowing it to pay dividends since 1833. Moreover, the bank has increased its dividend at an annualized rate of 4.9% over the past 10 years and currently offers a healthy dividend yield of 4.8%.
BNS also reported an impressive third-quarter performance last month, with its adjusted EPS (earnings per share) growing by 15.3%. Additionally, its Common Equity Tier 1 (CET1) capital ratio, a key indicator of the bank’s financial strength, rose by 10 basis points to 13.3%, supported by robust internal capital generation. Moreover, the bank is working on expanding its business in the low-risk North American market, while scaling back its operations in Latin America. These initiatives could optimize its operations by concentrating resources on higher-return opportunities, ultimately boosting profitability. Therefore, I believe BNS’s future dividend payouts are safe.
