Canadian investors are using their self-directed Tax-Free Savings Account (TFSA) to build portfolios of investments that can generate steady tax-free income in retirement.
In the current market condition where the TSX sits near its record high, while trade uncertainties and elevated inflation continue to present headwinds, it makes sense to consider companies that pay reliable dividends and have the balance sheet strength to ride out some economic turbulence.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $120 per share compared to the 2026 high above $127. The stock is still up 50% over the past year, but investors can take advantage of the dip to pick up a decent 3.8% dividend yield.
Bank of Nova Scotia is making good progress on a turnaround program that was launched by the current CEO, who took the top job in early 2023.
Management trimmed staff and is streamlining the Canadian business to reduce expenses. The company has also made a significant shift in its international strategy. Bank of Nova Scotia previously invested billions of dollars in acquisitions in Latin America, with a core focus on Mexico, Peru, Colombia, and Chile, as well as in other markets. The growth potential in the region is attractive, but investors didn’t see the anticipated returns, and Bank of Nova Scotia’s stock underperformed its peers for several years.
The company is now targeting growth opportunities in the United States and Canada, while scaling back its Latin American investments. Bank of Nova Scotia recently sold its operations in Colombia, Panama, and Costa Rica. In the U.S., the bank spent US$2.8 billion in 2024 to buy a 14.9% stake in KeyCorp, an American regional bank.
Profits and return on equity (ROE) have improved in the past two years, which is part of the reason the stock has rebounded. As ROE continues to improve, the stock could drift higher.
TC Energy
TC Energy (TSX:TRP) traded for $100 a few weeks ago. The stock has since pulled back to $85, as investors book profits after a run that saw TRP double in two years. Near-term volatility could continue as the market weighs the risks of higher borrowing costs against the strong growth program and positive momentum in the North American energy sector.
On the risk side, rising yields in bond markets will make borrowing more expensive to fund capital projects. At the same time, sticky inflation could force the Bank of Canada and the U.S. Federal Reserve to start raising interest rates again. The last time that occurred in 2022 and 2023, TC Energy’s share price fell from $74 to $45.
The long-term outlook, however, should be positive. TC Energy completed two major natural gas pipelines in the past two years that are now in commercial operation. The Coastal GasLink pipeline, which was heavily delayed and ran way over budget, now carries natural gas from Canadian producers to the new LNG Canada liquefied natural gas export facility on the coast of British Columbia. Global demand for Canadian energy is high, and TC Energy is now in the planning stages to potentially double the capacity of Coastal GasLink.
In total, the company’s growth program is expected to run at roughly $6 billion per year over the medium term. As the new assets are completed and go into service, the boost to cash flow should support steady dividend increases. TC Energy raised the dividend in each of the past 26 years. At the time of writing, the stock provides a yield of 4.1%.
The bottom line
Bank of Nova Scotia and TC Energy pay good dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
