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TFSA Investors: 3 Dividend Stocks I'd Buy and Hold Forever

The Motley Fool ·  08/21 20:00

Investors aiming for steady passive income can turn to high-quality dividend stocks. Moreover, leveraging the TFSA (Tax-Free Savings Account) can further enhance income as dividends, interests, and capital gains are not taxed within the TFSA.

With this backdrop, let's discuss three top Canadian stocks I'd buy and hold forever for a worry- and tax-free dividend income.

Canadian Utilities

TFSA investors seeking stable passive income could consider adding shares of leading utility companies in Canada. Their defensive business model, rate-regulated earnings base, and predictable cash flows enable them to return higher cash to shareholders.

TFSA investors could add Canadian Utilities(TSX:CU) stock among the top utility companies. With an impressive 52-year streak of uninterrupted dividend growth – the longest by any Canadian company – Canadian Utilities demonstrates both the strength of its business model and its dedication to enhancing shareholder value. Its consistent ability to pay and grow dividends, even through various market conditions, shows its resilience.

Canadian Utilities' dividends are well-covered by its defensive business model and rate-regulated earnings base. The company earns a substantial portion of its earnings from regulated utility assets, ensuring the stability of its payouts. Further, the company is poised to grow its dividends in the coming years.

Canadian Utilities' investments in regulated utility assets will expand its rate base, driving higher profits and dividend payouts. Also, its focus on optimizing energy infrastructure capital projects should further bolster its earnings and ability to reward shareholders. Currently, Canadian Utilities offers an attractive dividend yield of 5.4%, making it a compelling option for TFSA investors.

Telus

Similar to Canada's top utility companies, the country's leading telecom giants are well-known for rewarding their shareholders with generous dividends. Among them, Telus (TSX:T) stands out for its stellar dividend payment and growth history.

Thanks to its ability to grow profitably, Telus has built a reputation for consistently enhancing shareholder value. Since 2004, Telus has returned approximately $21 billion in dividends to its investors. Further, the company plans to increase its dividends by 7-10% annually under its multi-year dividend growth program.

While macro headwinds and heightened competition pose challenges for the company in the near term, its margin-accretive growth strategies and cost-efficiency initiatives will likely cushion its earnings and support higher dividend payments. Further, the company continues expanding its customer base and is investing in network infrastructure and technological advancements to accelerate growth and cover its payouts. Currently, Telus stock is offering a high yield of over 7%.

Enbridge

The addition of Enbridge (TSX:ENB) stock could enhance the income-generating capabilities of your TFSA portfolio. This oil and gas company is known for increasing its dividends irrespective of commodity and economic cycles. Its dividends have increased at a compound annual growth rate (CAGR) of 10% in the past 29 years. Moreover, Enbridge is well-positioned to increase its dividends in the upcoming years.

The company's consistency in rewarding its shareholders with uninterrupted dividend growth comes from its diversified asset base and high asset utilization rate generating solid distributable cash flows (DCF). Moreover, the long-term contracts and power-purchase agreements add stability to its earnings, thus supporting higher payouts.

Further, this energy company's multi-billion secured projects will likely expand its assets base and support its payouts. Enbridge sees mid-single-digit growth in its EPS and DCF per share in the long term. This indicates that the company's dividend could grow at a similar pace. While its dividends are likely to increase, Enbridge offers a compelling yield of about 6.9% based on the last closing price of $53.24.

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