With the tax-free savings account, or TFSA, investors have access to tax-savings that can have a significant positive impact on total returns and savings. This tax-sheltered account currently has a cumulative contribution limit of $109,000. If you still have TFSA room to contribute, I have a dividend stock that you should consider – Enbridge Inc. (TSX: ENB).
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Why Enbridge?
Dividend stocks are one of the ideal investments to put into a TFSA. This provides tax-free dividend income, increasing the total return of the investment.
Enbridge is a reliable dividend stock with a strong track record of consistent and increasing dividend payments. For example, Enbridge has been paying a dividend to its shareholders for more than 70 years. Also, the company has 31 consecutive years of annual dividend increases under its belt.
Its safe, predictable and resilient cash flow profile is what has made this possible. The vast majority of Enbridge stock’s cash flow is either regulated or protected by long-term contracts. This is what makes its cash flow highly predictable and safe.
An ideal choice for your TFSA contribution room
Given all of the turmoil that continues around the world, a stock with Enbridge’s cash flow profile seems to me to be an ideal choice for any investor’s TFSA.
Additionally, Enbridge has proven itself to be steady and resilient through all market cycles, and it has survived and thrived through all the major crises over the last many decades. Today, Enbridge continues to thrive and in fact, the current geopolitical turmoil may actually even work in Enbridge’s favour.
The war in Iran is a sad reality, and it has caused energy markets to struggle. Oil prices are skyrocketing, and the importance of energy security has been brought front and centre once again. This drives home just how valuable Canada’s and North America’s oil and natural gas resources are. You really can’t put a price tag on the security issue.
Thus, we are seeing that Enbridge has clear opportunities to help North America’s oil and gas reach global markets. In fact, the company is using its $40 billion capital spending budget to expand its liquids and gas transmission businesses. Enbridge is adding more egress to move Canadian and U.S. oil and gas to those who need it. This means domestic as well as global customers such as power generation, gas utilities, liquified natural gas (LNG) facilities, and data centres.
Energy markets have been disrupted before. But the war in Iran has come at a time when North America has already been building out its export facilities to support rising global demand. This conflict is likely to strengthen this momentum.
Consistent tax-free dividend income
Finally, let’s look at the impact that a $21,000 investment into Enbridge stock will have on your portfolio. As you can see from the chart below, you would receive approximately $1,000 in tax-free annual dividends. Assuming that your marginal tax rate on eligible dividends is 25%, your annual tax savings would be approximately $260.
If you put this money back to work by reinvesting it, the financial rewards accumulate over the years. This tax savings and the compounding effect will continue to add to your TFSA savings, allowing it to grow over time.
The bottom line
Fully using all of your TFSA contribution room is a wise choice to make if you can, as the tax savings add up over time. Enbridge stock is truly an ideal dividend stock to add, as it remains defensive and resilient, and the company can be expected to benefit from the positive oil and gas fundamentals that continue to take shape.
