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TFSA Investors: 5 Hot Dividend Stocks to Buy in 2019

Dividend stocks and TFSA make a killer combination

The Tax-Free Savings Account (TFSA) contribution limit for 2019 is a good $6,000. For Canadians, there isn’t a better time than now to sock away funds into TFSAs by buying dividend-paying stocks of fundamentally strong companies that are committed to growing dividends in not just 2019 but for years to come.

Because the dividends earned from stocks in your TFSA account are not taxable, you can reinvest them and multiply your returns manifold in the long run. That makes dividend stocks in TFSAs one of the best tools for Canadians to build a corpus for life’s major goals such as retirement. Here are five such hot dividend stocks that deserve a spot in your TFSA 2019.


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1. Canadian National Railway Company (TSX:CNR)(NYSE:CNI)

Railroads are the backbone of an economy as they’re the preferred mode of transportation of goods over the long haul. Canadian National Railway is a leader in the industry, moving goods worth nearly $250 billion every year through its expansive network that spans three coasts and nearly 20,000 route-miles. No other railroad in the U.S. has such an extensive network.

Having made record capital investments into infrastructure to expand capacity in fiscal 2018, Canadian National Railway is poised to ride the next growth wave even as it remains cost efficient and strives to maintain one of the lowest operating ratios (a company’s total expenses relative to revenue) in the industry.

Shareholders can also expect higher dividends year after: Canadian National Railway has increased dividend every year since 1995, growing it at a solid compound annual rate of 16% since. The stock’s drop in 2018 presents an excellent opportunity for TFSA investors.


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2. Fortis Inc. (TSX:FTS)(NYSE:FTS)

Fortis is a typical defensive stock as it’s one of the largest utilities in North America, serving electricity and gas to nearly 3.3 million customers. Because utility is a highly regulated business and demand for essentials like electricity remains resilient even during a downturn, Fortis has been able to generate steady cash flows over the years and increase dividends every year for 45 consecutive years now.

Fortis recently announced a new growth plan for 2019-2023, with key financial targets as follows:

  • 6-7% rate base growth (base rate is the value of a property on which a utility earns income at a predetermined regulated rate).
  • $17.5 billion capital expenditure outlay, the bulk of which will be funded through internally generated cash from operations.
  • 6% growth in annual dividend.

That dividend growth is of particular significance to TFSA investors as it can compound returns, especially when combined with Fortis stock’s dividend yield of nearly 4%.


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3. Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP)

Brookfield Infrastructure stock has proved to be a solid investment since it was spun off from Brookfield Asset Management in 2008: It grew dividends at a compound annual rate of 11% and generated a jaw-dropping 600% in total returns since.

While past performance doesn’t guarantee future returns, Brookfield has what it takes to make TFSA investors richer. The company can earn steady revenue and cash flows as pay regular dividends as it primarily operates assets in essential sectors like utility, energy, and transportation — think power plants, toll roads, gas pipelines, telecom towers, and data centers. Management is also adept at selling mature assets and reinvesting the proceeds in ones with greater potential.

Brookfield aims to pay out 65% of every dollar earned in funds from operation as dividend and increase dividend annually by 5-9% in the long term. With the stock yielding 5.4% after losing significant ground in 2018, TFSA investors can’t miss the opportunity.


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4. BCE Inc. (TSX:BCE)(NYSE:BCE)

BCE, a leading broadband network company, is also a top dividend payer. Wireless data is where all the action should be in coming years, and BCE already seems to be making the most of the opportunities: It recently reported its best-ever third quarter in terms of wireless subscriber additions.

BCE generated nearly as much in free cash flow (FCF) as net income in the trailing twelve months, which reflects its financial fortitude. With nearly 50% of its ongoing direct fibre-optic expansion nearing completion, BCE’s capital expenditures will likely remain stable or even taper beyond 2019, thereby freeing up more cash for shareholders.

BCE’s dividends have nearly doubled since 2008. With the company set to grow FCF by 3-7% in fiscal 2018 and management targeting 65-75% FCF payout, BCE’s streak of dividend increases should continue. Factor in a dividend yield of 5.6%, and BCE makes a top TFSA stock pick.


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5. Toronto-Dominion Bank (TSX:TD)(NYSE:TD)

Toronto-Dominion Bank and its subsidiaries, collectively known as TD Bank Group (TD), serves nearly 25 million customers worldwide through a broad array of financial products and services, including but not limited to retail and business banking, financing, asset management, insurance, and wholesale banking.

Today, TD is the fifth largest bank in North America in terms of total assets. In the medium term, TD expects to grow its adjusted earnings per share by 7-10%, which should also ring in regular dividend increases.

TD has grown its dividends at a compound rate of 11% since 1998, proving that even companies in economy-sensitive sectors like banking can earn patient investors massive returns in the long run. That also means TFSA investors can look beyond potential near-term headwinds like a slowing housing market and own this 4% yielding solid dividend growth stock.


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It’s time to act, TFSA investors!

In a TFSA, not only the dividends but any capital gains you eventually earn on your stocks are also tax-free. Dividend-paying stocks have historically outperformed their non-paying counterparts, so any smart investor would stock up a TFSA account with more of the former to maximize returns.

From that standpoint, it’s easy to see why the five stocks I discussed today are a great fit for a TFSA account: They’re all dividend growth stocks with a strong track record and returns potential. So without wasting any time, start investing right away to put $6,000 (or even more if you didn’t max your previous years’ TFSA contribution) to good use.

Fool contributor Neha Chamaria has no position in any of the stocks mentioned.


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