When markets are down, investors are hesitant to buy stocks. However, this is the best time to identify quality stocks and buy them at reduced prices. The recent bear market has provided investors in the Tax Free Savings Account (TFSA) with the opportunity to buy low-value Canadian dividend stocks.
The TFSA is a flexible registered account that is gaining popularity with Canadians. The TFSA contribution limit for 2020 is $ 6,000, while the total contribution limit is $ 69,500. Although contributions to this account are not tax deductible, any withdrawals in the form of capital gains or dividends are exempt from Canada Revenue Agency (CRA) taxes.
This year saw a massive drop in Canadian stock prices due to the COVID-19 pandemic. In addition, with interest rates falling to multi-year lows, fixed income securities are no longer attractive to the income investor.
The recent sale is an opportune time for long-term investors to fill up on companies with attractive dividend yields that sell at low prices.
Here are two of my best dividend choices for your TFSA.
National Bank of Canada has a dividend yield of 4.6%
the National bank of Canada (TSX: NA) is the sixth largest bank in the country. He has managed to outdo his best-known peers in the past two decades. For example, the actions of National Bank have succeeded in generate annual returns of 12.9% over the past two decades after taking into account dividend reinvestments.
This means that an investment of $ 10,000 in National Bank in 2020 would have brought in nearly $ 113,000 today. National Bank stocks are trading at $ 62.05, 17% below their 52-week high. The decline pushed its dividend yield to 4.6%.
If you invest $ 10,000 in National Bank shares, you can generate $ 460 in annual dividends. The company has steadily increased its dividends, indicating that this number of payments will increase over the next decade.
National Bank also offers better growth potential compared to the banking giants of Canada’s Big Five despite its strong presence in Quebec, which represents 55% of customers. However, 19% of National Bank’s customers are located outside of Canada, which offers investors some diversification.
Why TC Energy is ideal for your TFSA
Another ideal dividend security for your TFSA is TC Energy (TSX: TRP)(NYSE: TRP), a North American infrastructure giant. TC Energy has more than $ 100 billion in assets and generates the majority of its EBITDA from long-term contracts.
This business model has enabled the company to maintain a constant dividend over the years due to its predictable and stable cash flows. TC Energy has indeed increased its dividends at an annual rate of 7% over the past 20 years.
TC Energy shares trade at $ 58.56, which means that its dividend yield is 5.53%. An investment of $ 10,000 in TC Energy will generate $ 553 in annual dividends. In addition, the stock has also gained 60% in the past 10 years, also increasing the wealth of investors through capital appreciation.
TC Energy plans increase dividend payments by 8% in 2021 and between 5% and 7% after 2021.
Its payout rate of less than 40% makes it an ideal dividend growth security, especially since it has one of the strong credit ratings among pipeline stocks.
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