Canadian savers are using their self-directed Tax-Free Savings Account (TFSA) to build portfolios of investments that can generate income and wealth to meet financial goals.
One popular investing TFSA strategy involves buying top TSX dividend stocks. This is useful for retirees who tend to be more focused on complementing pension income and want to create a steady stream of dividend income. Younger investors might decide to reinvest the dividends to harness the power of compounding.
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TFSA benefits
Interest, dividends, and capital gains earned inside a TFSA are tax-free. This means retirees can remove the full amount of the earnings without worrying about the extra income pushing them into a higher tax bracket or triggering an Old Age Security (OAS) pension recovery tax.
Dividends, interest, and capital gains earned inside a TFSA can also be fully reinvested without thinking about how much has to be set aside to potentially cover taxes, as is often the case when profits are made on investments held inside a taxable account.
Any money removed from the TFSA during the year opens up equivalent new contribution space in the following calendar year, in addition to the regular TFSA contribution amount. The TFSA limit is $7,000 in 2025, which brings the maximum cumulative TFSA contribution space to $102,000 for people who have qualified since the creation of the TFSA in 2009.
Good stocks to buy in a TFSA
In the current market conditions, it makes sense to consider TSX stocks that are industry leaders and have good track records of delivering steady dividend growth.
Owning stocks comes with risks. Share prices can fall below the purchase price, and dividends can be cut if a company runs into financial challenges. This is the trade-off for getting exposure to potential upside in the share price and benefitting from rising dividends.
Enbridge
Enbridge (TSX:ENB) is one of the largest companies on the TSX with a current market capitalization of $145 billion. The stock trades for close to $66 per share at the time of writing. That’s up 50% over the past 24 months, but down slightly from the recent high around $70, giving investors a chance to buy ENB on a bit of a dip.
Enbridge is working on a $32 billion capital program. As the new assets are completed and go into service, the boost to revenue and cash flow should support ongoing dividend growth. Enbridge also expands through acquisitions. In 2024, for example, Enbridge spent US$14 billion to acquire three natural gas utilities in the United States. These assets generate rate-regulated revenue and provide an opportunity for additional growth projects.
Enbridge’s efforts in recent years to diversify the revenue stream have made the overall business more balanced. Enbridge’s oil pipelines and natural gas storage and transmission infrastructure remain important and are now complemented by export facilities, the natural gas utilities, and renewable energy.
Investors who buy ENB at the current level can get a dividend yield of 5.7%. Enbridge increased its distribution in each of the past 30 years.
The bottom line
Near-term volatility is possible as the broader market is due for a pullback. That being said, Enbridge should be an attractive buy-and-hold dividend pick for a TFSA at the current price. The downside would be viewed as an opportunity to add to the position.
