Dividend investing in a Tax-Free Savings Account (TFSA) is one of the best ways to generate passive income for Canadians. By using the contribution room in your TFSA, you can build a portfolio of reliable income-generating assets like dividend stocks. In turn, the dividend stocks can line your account balance with extra cash through quarterly or monthly distributions by the underlying businesses.
Between the capital gains and dividend income, you can use your TFSA as an investment vehicle to grow your wealth. There is no shortage of stocks to choose from when building such a portfolio. Canadian energy stocks have long been favourites for investors seeking dividend income. The steady businesses generate steady and reliable cash flow supported by diverse revenue streams and high-quality assets.
Not all Canadian energy stocks can be good holdings for income-focused investors. Today, I will discuss two solid bets that investors can consider adding to their portfolios for steady and growing cash in their TFSAs.
Source: Getty Images
TC Energy
TC Energy (TSX:TRP) is a $78.4 billion market capitalization energy infrastructure company with power-generation and pipeline assets in its portfolio. Its pipeline networks, spanning over 57,000 miles, transport hydrocarbons throughout North America. The company services the energy industry through its extensive network, generating stable and strong cash flows.
TC Energy has long been a reliable dividend stock that Canadian investors count on for passive income. The stock also increases its payouts regularly. TRP stock has increased its dividends at a compound annual growth rate (CAGR) of 7% in the last 25 years. It expects its annual dividends to increase by 3–5% annually in the long run. As of this writing, the stock trades for $75.27 per share and boasts a 4.5% dividend yield that you can lock into your portfolio today.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is one of Canada’s biggest crude oil and natural gas producers. The oil and natural gas company engages in the exploration, development, marketing, and production of natural gas and crude oil. The oil and gas producer has several long-life and low-decline assets among its diversified portfolio of high-quality assets that let it generate strong and stable cash flows.
The company’s solid business model has allowed it to increase payouts to investors for over two decades. Canadian Natural Resources stock has increased its distributions for the last 25 consecutive years at an impressive 21% CAGR. As of this writing, CNQ stock trades for $45.44 per share. It pays investors $0.5875 per quarter, translating to a juicy 5.2% dividend yield that you can lock into your portfolio today.
Foolish takeaway
Not every energy company has the disciplined capital allocation that TC Energy and Canadian Natural Resources have. It is their approach to running the businesses that allows the management in these two energy companies to funnel a significant portion of earnings into share buybacks and shareholder dividends. The balance between income and growth can make them compelling investments for income-focused investors.
Allocating a portion of your TFSA contribution room to hold dividend stocks can help you generate decades of tax-free dividend income.
