TFSA (Tax-Free Savings Account) is a popular registered account among Canadians. It is an investment account, as it allows you to hold financial instruments across asset classes including equities, GICs, bonds, ETFs and mutual funds.
Investors should note that any income generated in a TFSA in the form of interest, capital gains or dividends is exempt from Canada Revenue Agency taxes. Therefore, it makes sense to hold blue-chip, dividend-paying stocks in this registered account, which allows investors to benefit from a steady stream of dividend income and long-term capital gains.
We’ll look at three Canadian dividend-paying stocks that should be part of your TFSA.
Canadian energy giant enbridge (TSX: ENB)(NYSE:ENB) There is a forward yield of 7.2%. The pipeline company has a diversified base of cash-generating assets, allowing it to increase dividends at an annual rate of 10% over the past 26 years. Despite the ups and downs in 2020, Enbridge has managed to maintain and even increase the dividend, demonstrating its resilient business model.
Most of its cash flows are backed by long-term contracts, making it relatively immune to fluctuations in commodity prices. Enbridge aims to grow its distributable cash flow by between 5% and 7% in the near future, which suggests investors can expect dividend increases in the future as well. It also focuses on keeping the payout ratio below 70%, allowing the firm to increase capital expenditures and lower debt levels over time.
Bank of Nova Scotia
One of Canada’s largest financial institutions, Bank of Nova Scotia (TSX: BNS)(NYSE:BNS) There is a forward yield of 4.5%. The company has been able to perform well amidst a sluggish macro-environment. in your financial year second quarter of 2021, Bank of Nova Scotia reported total earnings of $2.5 billion, or $1.9o per share, an 83% increase year over year.
The company’s strong results were driven by solid performance across all business segments. Further, its return on equity rose to 14.9% from 14.45% in the previous quarter and was well above the bank’s medium-term objective.
Bank of Nova Scotia’s revenue and net interest income grew 3% year over year due to a change in the company’s business mix towards “more secure retail and higher commercial property loan growth,” along with a rate cut associated with the Central Bank. There has been a decline. BNS also saw a decline in provisioning for credit losses, declining 86 basis points year-on-year.
Shift to clean energy solutions hope to speed up In the coming decade, making TransAlta Renewables (TSX: RNW) A solid long-term bet. With a dividend yield of 4.8%, this renewable energy giant is an ideal buy for income and growth investors.
In the first quarter of 2021, TransAlta reported revenue of $126 million, up from $110 million in the prior-year period. Its net cash flow from operations increased from $82 million to $103 million during the period.
In 2021, the company forecast comparable EBITDA between $480 million and $520 million, while adjusted funds from operations are estimated at between $335 million and $365 million.
The cumulative TFSA contribution is $75,500, which means that if this amount is distributed equally among the three stocks mentioned here, you could receive more than $4,150 in annual dividends. However, this is an example of quality dividend stock trading on the TSX. You can use this article as a starting point in your research and identify similar stocks with strong fundamentals and strong cash flow.
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The Motley Fool owns and recommends Enbridge. The Motley Fool recommends Bank of Nova Scotia. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.
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