Canadian investors are using their Tax-Free Savings Account (TFSA) to build portfolios of stocks that can generate passive income and deliver attractive long-term total returns. In an era of economic uncertainty, it makes sense to search for good dividend-growth stocks with histories of rising share prices over the course of decades.
Royal Bank
Royal Bank (TSX:RY) is the largest company on the TSX, with a current market capitalization of about $234 billion. The bank ranks among the top 10 globally based on this metric and continues to expand its reach.
Royal Bank purchased HSBC Canada for $13.5 billion earlier this year in a deal that added more than 100 branches and brought in a portfolio of new wealthy clients. The deal is already providing a nice boost to the bottom line.
Royal Bank trades near $165 at the time of writing. This is just shy of the recent record high of $169 at a time when its large Canadian peers are still well below their highs reached in 2022. RY stock isn't cheap, but you get a best-in-class bank that steadily increases the dividend and has delivered solid long-term total returns for patient investors.
BCE
BCE (TSX:BCE) is a contrarian pick right now. The stock took a beating over the past two years as high interest rates drove up borrowing costs on BCE's large debt position. At the same time, price wars in the mobile segment and weak advertising revenue in the media business have put added pressure on the share price. BCE fell from $74 in 2022 to as low as $43 in July this year. The stock is currently at $47.50 and provides a dividend yield of 8.4%.
BCE just announced it will sell its stake in Maple Leaf Sports and Entertainment (MLSE) for $4.7 billion. The company intends to use the funds to reduce debt and invest in its digital transformation. The influx of cash, expected next year, should ease concerns about BCE's balance sheet. In addition, it should make investors more comfortable with the sustainability of the dividend.
Patience is required, but you get paid well to wait for the recovery.
Fortis
Fortis (TSX:FTS) is a good stock to buy if you simply want to stick it in the portfolio and not worry too much about the share price for the next 20 years. The utility company operates $69 billion in rate-regulated assets that include power generation, natural gas distribution, and electricity transmission businesses. Revenue and cash flow growth tend to be predictable and reliable due to the capital program and strategic acquisitions. This is largely why Fortis has been able to boost the dividend annually for the past 50 years. The current $25 billion capital program is expected to support planned dividend increases of 4-6% per year through 2028.
The bottom line on top dividend stocks
Royal Bank, BCE, and Fortis have generated solid long-term returns for investors. If you have some cash to put to work in a buy-and-hold TFSA focused on dividends, these stocks deserve to be on your radar.
