A Dividend Champion Every Canadian Needs in Their TFSA

Find out why investing in dividends through a TFSA can effectively protect your earnings from inflation and taxes.

Puja Tayal

Author Bio

Puja Tayal grew up in a small-business family where dinner conversations often centred on working capital and savings. Her early experiences with investing, particularly during the 2008 financial crisis, shaped her approach to understanding markets and evaluating investment opportunities. She began her career at a mutual fund company before moving into investor education and financial writing for asset and wealth management firms. Before joining The Motley Fool, Puja wrote for Market Realist, where she extensively covered the semiconductor industry. Her published work has also appeared in The Indian Express. Puja believes every stock has a story that can help investors understand its potential returns. She combines business analysis with different investing approaches to help investors make informed decisions and align their portfolios with their long-term financial goals. Outside of finance, Puja enjoys long drives, catching up with friends, watching superhero and science-fiction movies, and managing her family portfolio. She also has a keen interest in artificial intelligence and its potential to reshape the world.

Education

Bachelor's degree in Accounting and Finance, University of Mumbai (2007)
CFA Level I

Areas of Expertise

Qualitative company analysis, management strategy, risk assessment, long-term investing, portfolio diversification and rebalancing, dividend reinvestment, cyclical growth opportunities, compounding strategies, growth stocks, and dividend stocks.

Social Media Profiles

Favorite Investment Quote

"Risk comes from not knowing what you're doing." — Warren Buffett

Published November 12, 4:10 pm EST

The Tax-Free Savings Account (TFSA) is more than a normal savings account. It can be your cash-generating machine on which the Canada Revenue Agency (CRA) doesn’t lay a finger. The TFSA is the only registered savings account that allows you to withdraw money tax-free without any capping or usage conditions. The money you withdraw in 2026 is added back to your TFSA contribution room in 2027. This tax-free withdrawal and add-back makes the TFSA the perfect vessel to hold a dividend champion like Canadian Natural Resources (TSX: CNQ).

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies." — Source: Getty Images

A dividend champion every Canadian needs in their TFSA

Every person has a different investing capacity and risk profile. But when it comes to dividends, everyone wants assured payouts and ones that can beat inflation. The most common driver of inflation is high energy prices. Thus, an energy stock with a robust dividend policy makes it ideal for every Canadian.

Canadian Natural Resources fits the bill in every aspect. It has the largest oil sands reserves in Canada and one of the lowest costs per barrel. Maintenance costs are lower for oil sands exploration than US shale gas exploration.

The assurance that Canadian Natural Resources will pay dividends comes because the company includes dividend and maintenance costs in its breakeven price of mid-$40s/barrel. It earns more cash when energy prices rise, which converts to a higher dividend. The company has been paying dividends for the last 26 years and growing them every single year.

The dividend safety of this stock

The safety of its dividends can be seen from CNQ’s free cash flow allocation policy. It aims to maintain a net debt of $13 billion and use the remaining free cash flow on share buybacks. The company doesn’t offer a dividend reinvestment plan, which means minimal dilution of shares. It funds most of its acquisitions from debt. The company acquires reserves to increase production.

Whenever debt crosses the target range, it diverts free cash flow towards accelerated repayment. The dividend payout comes from funds from operations. During an energy upcycle, it declares a special dividend. During an energy downcycle, it retains existing dividends with a marginal growth of 2–6%. The strong balance sheet, disciplined debt management, and lower capital expenditure make its dividends safe.

How a TFSA can enhance CNQ dividends

The TFSA allows your investment income to grow tax-free. It means your growing dividends or capital gains from a share sale are tax-free. The TFSA could have enhanced the 20% average annual dividend growth rate of Canadian Natural Resources by making it tax-free.

Suppose you bought 200 shares of Canadian Natural Resources in January 2020 for $4,140 when the stock traded at $21. Your annual dividends would have grown from $170 in 2020 to $500 in 2026. All these dividends are excluded from taxable income. Today, the value of these 200 shares is $13,940 at $69.70 per share. Even if you want to sell some shares and book profits, the capital gain is tax-free.

Year	Dividend per Share	YoY Growth	Dividend Amount on 200 Shares	Value of 200 Shares
2026	$2.50	6.4%	$500.00	$13,940.00
2025	$2.35	9.9%	$470.00
2024	$2.14	15.5%	$427.50
2023	$1.85	19.4%	$370.00
2022	$1.55	55.2%	$310.00
2021	$1.00	17.5%	$199.75
2020	$0.85	13.3%	$170.00	$4,140.00

Even now, CNQ is a good stock to buy after it corrected 11% in November. If you already own CNQ shares, you can use the dividend amount to buy other dividend stocks like SmartCentres REIT and growth stocks like Shopify. They can help you compound your returns tax-free. With Shopify, seasonal buying in March to August and seasonal profit booking in November to February can help you make short-term capital gains.

Had you purchased 200 CNQ shares in a normal trading account, you would have to pay dividend tax, leaving less money for reinvestment in other stocks. Thus, when investing in Canadian dividend stocks, first max out your TFSA contribution room before considering a Registered Retirement Savings Plan (RRSP) for tax deduction.