An Ideal TFSA Stock With a Steady 4.4% Yield

Here’s why this defensive growth stock offering a yield of roughly 4.4% today is such an ideal investment for a TFSA.

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Key Points
  • Use your TFSA for tax-free compounding — because contribution room is limited, prioritize high-quality, lower-risk stocks that can grow steadily for decades.
  • Brookfield Infrastructure (TSX:BIP.UN) fits that profile: a globally diversified portfolio of essential assets, a capital-recycling growth strategy, and an attractive ~4.4% dividend yield.
  • Its resilient cash flows and defensive assets make it easier to hold through market volatility, helping maximize long-term tax-free gains.

It’s no secret that the Tax-Free Savings Account (TFSA) is easily one of the best investing tools Canadians have access to. Unlike a Registered Retirement Savings Plan (RRSP), where you’ll eventually pay tax when you withdraw your money, every dollar you earn in a TFSA is completely tax-free.

That’s why it’s so important to buy the right Canadian stocks in your TFSA. Since contribution room is limited, you don’t want to invest in high-risk businesses because if you lose that room, you can’t get it back.

At the same time, though, you still want to maximize your long-term growth because every dollar you earn can compound tax-free for decades.

So, the goal is to find stocks that can grow your wealth without taking unnecessary risk.

That’s why the best stocks to look for are high-quality businesses that can continue growing your wealth year after year while also giving you confidence to stay invested through whatever economic environments materialize. It’s also why Brookfield Infrastructure Partners (TSX: BIP.UN) is one of the most ideal TSX stocks to buy in your TFSA.

Not only does it offer an attractive dividend yield of roughly 4.4%, but it also has the long-term growth potential and dependable business model that can help investors maximize the power of tax-free compounding for years to come.

A worker overlooks an oil refinery plant.

Source: Getty Images

A business that’s built to grow for years

When it comes to buying any stock, obviously, the most important consideration is its business model. And while Brookfield offers a tonne of reasons to buy it, its business model is easily at the top of the list.

First off, the ideal TFSA stock owns a globally diversified portfolio of essential infrastructure assets, including utilities, pipelines, transportation networks, and data infrastructure. That means the core of its business and cash flow generation comes from some of the most defensive assets you can buy; plus, they’re diversified all over the globe.

That’s what allows Brookfield to generate reliable cash flow year after year and establish itself as such a reliable dividend stock. However, in addition to the core assets it owns, it also operates with a growth mindset.

So, unlike many other defensive infrastructure businesses that are just as reliable but focus mainly on providing steady income, Brookfield does all that while also regularly investing in expanding its existing assets.

And not only does that lead to more growth, but it also means Brookfield is constantly looking to improve its portfolio by recycling capital from mature investments into new projects with even stronger long-term growth potential.

Therefore, over time, its resilient cash flow continues to grow, allowing the company to consistently reward shareholders with dividend increases and an attractive yield that’s significantly higher than that of many traditional growth stocks.

That combination of attractive income today, long-term growth tomorrow, and the consistency to execute year after year is extremely rare and is exactly why Brookfield is such an ideal stock for a TFSA.

Brookfield is the perfect stock to own in your TFSA when markets get volatile

Of course, owning a great business is only part of the equation. One of the biggest challenges investors face over the long term isn’t necessarily finding quality stocks; it’s having the confidence and discipline to keep owning them when markets inevitably become volatile.

That’s another reason Brookfield Infrastructure is such an ideal TFSA stock. Because it owns essential infrastructure assets that continue generating resilient cash flow in almost any economic environment, it’s much easier to have confidence in Brookfield’s long-term outlook than in a more speculative growth stock.

That confidence matters because the best way to invest for the long haul is often simply buying great businesses and giving them as much time as possible to compound your capital.

That’s why, when you’re investing in a TFSA, where every dollar of long-term growth is completely tax-free, finding businesses you can confidently hold for decades can be just as important as finding businesses with strong growth potential.

Fool contributor Daniel Da Costa has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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