The Tax-Free Savings Account (TFSA) is the ideal vehicle for Canadian retirees seeking passive income. However, when prospecting, look for a high-yield dividend stock with secure cash flows. I found my ideal retirement TFSA stock paying a 5.7% dividend.
South Bow Corporation (TSX: SOBO) is a relatively new energy entity but is well established in the Oil & Midstream industry. In October 2024, TC Energy spun off its liquids pipeline business into a separate, independent company. South Bow is tasked with operating the crude oil infrastructure, notably the Keystone Pipeline System.
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Tollbooth cash flow
The Keystone Pipeline System is South Bow’s largest liquids pipeline asset, approximately 4,900 kilometres long. Crude oil passes through the pipeline network to meet energy demand in North America. It connects Alberta crude oil supplies to U.S. refining markets in Illinois, Oklahoma, and Texas, and provides a direct path to the U.S. Gulf Coast.
Other pipeline systems include Grand Rapids, Market Link, Port Neches, and White Spruce. Blackrod and Prairie are proposed connector projects. The Blackrod Connection Project is its first major growth project. South Bow offers competitive tolls and commercial structures to ensure long-term customer relationships and commitments.
The $10.4 billion energy infrastructure company boasts a durable business model with stable, low-risk cash flows. South Bow’s cash flows from refiners, vertically integrated companies, and producers are highly contracted, and account for 90% of normalized EBITDA. Management says dividend stability and sustainability are top priorities.
Strong demand and growth prospects
In the first half of 2026, revenue and net income increased 1.5% and 14.7% year-over-year to $1 billion and $211 million, respectively. South Bow notes the strong demand for capacity on the U.S. Gulf Coast in the second quarter due to disruptions to global crude oil trade flows. Price differentials in Oklahoma tightened as crude oil inventories declined.
In May 2026, South Bow announced it had secured 20-year binding commitments for firm transportation service from Hardisty, Alberta to U.S. delivery points. This will prompt a final investment decision to advance its proposed Prairie Connector project.
Bevin Wirzba, South Bow’s CEO, said, “We appreciate the significant commitment and confidence from our customers and look forward to advancing this project to support growth in secure and reliable Canadian energy.” The Prairie Connector project extends from Hardisty to the Canada-U.S. border.
Returning capital to shareholders
Dividends are South Bow’s primary means of returning capital to shareholders. Predictable, long-term contracted cash flows fully cover the quarterly dividends. Expect future dividend hikes as cash flow capacity expands through commercial growth projects like the Blackrod Connection Project and the Prairie Connector.
SOBO’s total return in two years is plus-90.7%, a 36.3% compound annual growth rate (CAGR). Meanwhile, current investors enjoy a 37.8% year-to-date gain. If you invest today, the share price is $49.79. A $14,000 TFSA contribution room will generate $199.50 in tax-free income every quarter ($798 annually).
Receive tax-free retirement income
Selecting the right dividend stock is key to receiving tax-free income. South Bow is an ideal retirement TFSA stock because of its essential pipeline transportation services, contractually secured cash flows, and stated commitment to prioritizing dividend payments. The price appreciation is a bonus.
