TFSA Investors: This 4.4% Dividend Stock is Perfect for Tax-Free Passive Income

This Canadian dividend stock has a 50+ year track record for dividend hikes, making it an excellent part of your self-directed TFSA portfolio.

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Key Points

  • Canadian Utilities (TSX:CU) — ~$11.3B Calgary utility, trading near C$41.68, pays C$0.4577 quarterly (~4.4% yield) and boasts a 50+ year dividend‑growth streak.
  • Its regulated gas and power businesses deliver predictable cash flows that support consistent dividend hikes, making CU a strong core holding for TFSA/dividend portfolios.
  • 5 stocks our experts like better than [Canadian Utilities] >

There are plenty of strategies you can use when investing in the stock market to get the best possible returns based on your risk tolerance and financial goals. Investors with a solid long-term strategy will most definitely allocate a portion of their investment capital to dividend stocks.

The TSX has no shortage of reliable dividend stocks. For those seeking long-term holdings, doing your due diligence on a stock can do wonders in terms of maximizing potential returns on your investment. You should look for dividend stocks that offer a higher yield than the returns you might get from fixed-income assets.

Additionally, you should consider whether the dividends are reliable instead of blindly chasing high-yielding returns. Investing in stocks that also increase dividends can further boost your investment portfolio, giving you the chance to create a passive income stream that grows over time.

What to seek

The first thing you must consider when seeking dividend stocks to invest in is consistency. Consistent cash flows allow publicly traded companies to fund shareholder dividends. A dividend stock can post solid earnings one quarter and see a drop in the next, but steady free cash flow tells you that the underlying business can generate the kind of money to pay and increase its payouts.

Utility stocks might be some of the least exciting on the stock market in terms of capital gains. However, stocks from this sector offer reliability due to the defensive business model. Utility companies trading on the TSX operate in highly rate-regulated markets, generating cash flows from essential services.

Whether the economy is booming or going under, people need their utilities. This means that utility businesses providing natural gas or electricity to consumers can continue generating cash flows regardless of broader economic issues in the market. In turn, the dividends offered by these stocks offer greater peace of mind to investors.

Another important factor to consider is the track record a dividend stock offers in terms of dividend hikes. Dividend stocks that raise shareholder dividends through recessionary environments have proven to be resilient. While past performance doesn’t predict future returns, it can paint a clearer picture of what to expect as an investor. Let’s take a look at a top dividend stock that checks all the right boxes.

Canadian Utilities

Canadian Utilities Ltd. (TSX:CU) is as close as it can get to a reliable dividend stock with a terrific track record. The $11.3 billion market-capitalization company headquartered in Calgary is one of the most robust dividend stocks available on the TSX. The company has built a reputation around its reliability, stability, predictability, and long-term dividend growth.

The company owns and operates an extensive network of natural gas and electricity utilities, generating consistent returns. Since its market is highly rate-regulated, the cash flows are predictable, letting the company comfortably plan capital project investments and increase payouts each year. CU stock is among the dividend royalty on the TSX, boasting an over 50-year track record for dividend growth.

Foolish takeaway

Considering that it boasts the longest-running streak of dividend growth on the TSX, Canadian Utilities stock might be one of the best investments you can consider. As of this writing, it trades for $41.68 per share and pays $0.4577 per share each quarter to investors, translating to a 4.4% dividend yield.

Buying and holding its shares in a Tax-Free Savings Account (TFSA) means you can lock in the high-yielding and consistently growing dividends without incurring taxes on any capital gains or interest income. CU stock can be an excellent foundation for a self-directed TFSA portfolio.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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