8 Best TFSA Dividend Stocks In Canada for February 2023: Earn a Tax-Free Yield

Do you want to add dividend-paying stocks to your TFSA to earn a tax-free yield but don’t know where to begin?

Dividends are an extremely important part of total returns – over the last 80 years, dividends have contributed over 40% of the total return of the S&P 500 index.

In the context of a TFSA account, it is important to take certain precautions to make sure that you do not end up paying taxes (despite the account being tax-free).

We will cover the best TFSA dividend stocks to consider below and go over some of their features.

Should you Hold Dividend Stocks in your TFSA?

The TFSA account eliminates the need to pay Canadian taxes on any gains, but it does not stop the impact of foreign withholding taxes. In the US, the Internal Revenue Service (IRS) applies a withholding tax of 15% or 30% on dividends from US companies that are paid to your TFSA.

You will not see this tax line anywhere – the dividend you will receive from your investment will simply be reduced by 15% or 30% directly. Other countries around the world may also apply their own versions of a foreign withholding tax to dividends paid.

For this critical reason, it makes sense to buy only Canadian dividend-paying stocks within your TFSA if you want to take advantage of its tax-exempt properties.

8 Best TFSA Dividend Stocks

1. Enbridge Inc.

Enbridge Stock
  • Ticker: ENB.TO
  • Size: Large Cap
  • Valuation: Value
  • Forward Dividend Yield: 6.66%
  • Dividend Payout Ratio: 140.66%
  • Dividend Yield (12-Month Trailing): 6.33%
  • Upcoming Dividend Date: Mar 01, 2023
  • Market Cap: $110.11 Billion
  • Forward P/E Ratio: 17.83
  • Average Analyst Rating: 2.4 - Buy

Most Canadian dividend investors are familiar with Enbridge stock. Enbridge runs the most complex and longest pipeline system in the world, focusing on transporting crude oil and other liquids.

As an oil and gas company, this makes it part of the midstream segment, which involves transporting fuels to businesses and customers. Enbridge has its headquarters in Calgary, Alberta

Enbridge has a solid history of delivering on management’s targets, and its stock has rewarded investors very well against category peers and the broader market.

Enbridge Photo 1

By market capitalization, Enbridge is one of the largest publicly-traded stocks in Canada and pays an excellent forward dividend yield to its investors. As with most large Canadian stocks, Enbridge is listed on the Toronto Stock Exchange and the New York Stock Exchange under the ticker ENB.

Enbridge delivers over 3 million barrels of crude oil and liquids daily through their Mainline and Express networks. For 2021, Enbridge delivered over 4 billion barrels of crude oil, the highest in company history.

Since Enbridge has grown its dividend yearly over the past 27 years, the company is classified as a Canadian dividend aristocrat.

While the company’s shares can begin to be volatile at times, they have an excellent long-term return profile. Enbridge stock’s high dividend yield allows investors to capture some form of return regardless of market conditions, helping to smooth returns (especially during difficult markets).

As an excellent Canadian blue-chip stock with a fantastic forward dividend yield, Enbridge is a great company to consider holding within your Tax-Free Savings Account.

2. Fortis Inc.

Fortis Stock logo
  • Ticker: FTS.TO
  • Size: Large Cap
  • Valuation: Core
  • Forward Dividend Yield: 4.41%
  • Dividend Payout Ratio: 79.92%
  • Dividend Yield (12-Month Trailing): 3.85%
  • Upcoming Dividend Date: Mar 01, 2023
  • Market Cap: $26.45 Billion
  • Forward P/E Ratio: 18.6
  • Average Analyst Rating: 2.8 - Hold

With headquarters in St. John’s, Newfoundland, Fortis is a large and well-known Canadian utility. The company is involved with the generation and distribution of power to a wide network of customers.

The company’s assets are 90% dedicated to providing electricity and natural gas across ten different operations across Canada, the Caribbean, and the US. Fortis has over 9,000 employees all over the world and outlined total assets of roughly $60 billion in the company’s latest financial filings.

Fortis has an incredible track record of growing the dividends that it passes on to investors for 48 years in a row. The company is currently paying an attractive forward dividend yield and is aiming to continue increasing dividend payments by roughly 6% per year until 2025.

Fortis Photo 1

Fortis is dual-listed in both Canada (Toronto Stock Exchange) and the US (New York Stock Exchange), which allows investors to buy the company’s shares in either Canadian or US dollars.

The company’s stock may also be attractive to ESG-focused (environment, social, and governance) investors. Fortis has built an allocation of $3.8 billion towards investing in clean energy in the short-to-medium term.

With approximately 3.4 million customers across electricity and gas and with 99% of assets being regulated, Fortis has a strong network of operations in place that should allow the company to continue being successful going forward.

As a stock with a long track record of performance and currently offering an attractive yield to investors, Fortis is a good choice to consider adding to your TFSA.

3. Toronto-Dominion Bank

TD Logo (Fixed)
  • Ticker: TD.TO
  • Size: Large Cap
  • Valuation: Value
  • Forward Dividend Yield: 4.11%
  • Dividend Payout Ratio: 43.85%
  • Dividend Yield (12-Month Trailing): 3.87%
  • Upcoming Dividend Date: Jan 31, 2023
  • Market Cap: $168.27 Billion
  • Forward P/E Ratio: 9.62
  • Average Analyst Rating: 2.4 - Buy

A massive bank here in Canada, TD is currently the second biggest by market capitalization. Globally, its size places it together with some of the largest banks in the world.

With $1.8 trillion in assets as of early 2022, the bank has been run by Bharat Masrani, its current CEO, since 2014.

The bank has three business segments that it divides its current operations into:

  • Wholesale Banking
  • Canadian Retail
  • US Retail

In Canada, TD operates across personal and commercial banking, credit and loans, wealth management, and insurance. In the US, TD offers personal and business banking, wealth management, and auto financing.

TD Securities is the division in charge of offering capital market services to clients, similar to other large banks.

The bank has more than 90,000 employees around the world and works with over 26 million clients. TD’s size places it among the largest public companies on the Toronto Stock Exchange.

The bank’s stock trades on both the Toronto Stock Exchange as well as the New York Stock Exchange under the ticker TD for both. The stock has historically paid a good yield to investors, with the bank increasing its dividend yield for 11 years in a row.

TD’s stock is classified as a value stock since it trades at inexpensive valuation multiples.

The bank’s stock is a good choice to consider adding to your TFSA if you are looking for a high-quality dividend stock.

4. Brookfield Renewable Partners

Brookfield Renewable Partners Stock
  • Ticker: BEP-UN.TO
  • Size: Mid Cap
  • Valuation: Core
  • Forward Dividend Yield: 4.56%
  • Dividend Payout Ratio: N/A
  • Dividend Yield (12-Month Trailing): 0%
  • Upcoming Dividend Date: Dec 30, 2022
  • Market Cap: $24.11 Billion
  • Forward P/E Ratio: 73.63
  • Average Analyst Rating: 2.1 - Buy

Canada’s largest renewable energy company by market capitalization is currently Brookfield Renewable Partners. Brookfield Renewable Partners is a subsidiary of the much larger Brookfield Asset Management, which is a huge Canadian asset manager with a global presence.

Brookfield Renewable Partners’ operations are focused on generating clean energy from sources like solar, hydroelectric, and wind power. The company also operates and manages energy storage facilities.

Brookfield Photo 1

Brookfield Renewable Partners’ management has established a goal to its dividend annually by a modest amount (single-digit growth).

The company currently generates 21 gigawatts of electrical capacity, a lot more than its Canadian peers in the renewable energy space. When taking into account the current projects that BEP is working on to complete, electrical capacity should jump to a total of roughly 90 gigawatts.

Brookfield Renewable Partners stock is currently paying a great forward dividend yield which will likely continue and grow in the future. As the focus on renewable energy generation around the world continues to boom, this should lead to a huge positive tailwind for BEP stock.

The stock’s leading position in the Canadian renewable space and great forward dividend yield makes it a great option to consider purchasing within a TFSA.

5. Telus Corporation

Telus Stock
  • Ticker: T.TO
  • Size: Large Cap
  • Valuation: Core
  • Forward Dividend Yield: 4.86%
  • Dividend Payout Ratio: 97.73%
  • Dividend Yield (12-Month Trailing): 4.64%
  • Upcoming Dividend Date: Jan 03, 2023
  • Market Cap: $40.94 Billion
  • Forward P/E Ratio: 20.44
  • Average Analyst Rating: 2.1 - Buy

Telus is one of the main communications providers throughout Canada, with headquarters in Vancouver, British Columbia. The communications industry in Canada is dominated by a few large players, with Telus’ main competitors being Rogers Communications and BCE Inc. (Bell Canada).

Telus’ recent financial statements outline that roughly 17 million clients are using at least one Telus service. The Canadian telecom industry is predicted to continue growing at a good pace, especially with the adoption of 5G technology.

Telus Photo 1

Telus’ current operations are split into two operating segments. These are Telus international and Telus technology solutions.

The company’s Telus international business segment operates mainly in US dollars and includes digital customer experiences, digital transformations, and artificial intelligence.

The Telus technology solutions business segment is currently the company’s main driver of revenue. It includes mobile services, cloud-based services, and mobile services.

Telus has a great track record of increasing its dividend on an annual basis. The company has done so for the past 18 years in a row and currently offers investors a very attractive forward dividend yield.

When looking at the stock’s historical performance, it has performed well relative to most other stocks during periods of market volatility. While Telus stock (like any other stock) has the potential to go to zero, it may appeal to investors that want to see slightly lower price volatility in their TFSA.

Telus stock’s defensive features and good forward yield make it a stock to consider adding to a TFSA dividend portfolio.

6. Algonquin Power & Utilities

Algonquin Power and Utilities Stock
  • Ticker: AQN.TO
  • Size: Mid Cap
  • Valuation: Core
  • Forward Dividend Yield: 6.94%
  • Dividend Payout Ratio: 230.87%
  • Dividend Yield (12-Month Trailing): 7.05%
  • Upcoming Dividend Date: Jan 13, 2023
  • Market Cap: $6.76 Billion
  • Forward P/E Ratio: 12.36
  • Average Analyst Rating: 3.2 - Hold

Another large Canadian renewable energy company with headquarters in the Greater Toronto Area, Algonquin Power & Utilities has substantial renewable energy infrastructure in place.

The company has roughly 3,400 employees and currently has the following infrastructure in place:

  • 1,217,680 solar panes
  • 1,541 wind turbines
  • 55 hydroelectric generators

 Algonquin Power & Utilities owns 41 energy facilities and has an installed 2.3-gigawatt gross capacity.

The company has managed to grow at a high rate over the past several years while also budgeting for a large number of capital expenditures which should help to sustain future development. With the completion of Algonquin’s current projects, the company’s total electrical capacity should jump to roughly 4 gigawatts.

Algonquin Power & Utilities Photo 1

Algonquin Power & Utilities has boosted its dividend for 11 years in a row at a 10% compounded annual rate of growth. Its current forward dividend yield is almost 7%, offering investors an extremely high-income stream.

If you are focused on responsible investing, Algonquin stock will fit well as part of an ESG portfolio.

The company’s strong recent growth, excellent forward dividend yield, and focus on renewable energy makes Algonquin Power & Utilities a great dividend stock to consider adding to your TFSA portfolio.

7. Canadian Imperial Bank of Commerce

CIBC Logo
  • Ticker: CM.TO
  • Size: Large Cap
  • Valuation: Value
  • Forward Dividend Yield: 5.58%
  • Dividend Payout Ratio: 45.58%
  • Dividend Yield (12-Month Trailing): 5.32%
  • Upcoming Dividend Date: Jan 27, 2023
  • Market Cap: $55.96 Billion
  • Forward P/E Ratio: 8.85
  • Average Analyst Rating: 3.0 - Hold

Currently the smallest of the five large Canadian banks, The Canadian Imperial Bank of Commerce, or CIBC, is still a very large Canadian publicly-traded company. CIBC is headquartered in Toronto, Ontario, and was founded in 1867.

According to a recent CIBC report, the bank currently has 11 million clients, roughly 45,000 employees, and more than 1,000 branches and 3,000 ATMs across the country.

The bank’s operations are divided into four main operating segments:

  • Canadian business and personal banking
  • Capital markets
  • Canadian wealth management and commercial banking
  • US wealth management and commercial banking

CIBC’s stock is listed on the Toronto Stock Exchange as well as the New York Stock Exchange, in both cases under the ticker CM.

Relative to its Canadian bank peers, CIBC’s valuation ratios are very inexpensive. The bank is currently paying an excellent dividend yield, which will appeal to dividend investors.

CIBC’s market cap is significantly smaller than larger peers like RBC and TD. The bank also has fewer clients and employees. Since CIBC has struggled to capture market share relative to the other Canadian banks, it trades at an attractive discount.

If you are looking to invest in a large-cap value stock with an attractive dividend yield within your TFSA, CIBC is a good bank to consider.

8. Barrick Gold Corporation

Barrick gold logo
  • Ticker: ABX.TO
  • Size: Large Cap
  • Valuation: Core
  • Forward Dividend Yield: 5.13%
  • Dividend Payout Ratio: 33.63%
  • Dividend Yield (12-Month Trailing): 1.55%
  • Upcoming Dividend Date: Dec 15, 2022
  • Market Cap: $43.28 Billion
  • Forward P/E Ratio: 21.93
  • Average Analyst Rating: 2.1 - Buy

Until 2019, Barrick Gold Corporation was the largest gold mining company in the world. With operations focused on gold and copper, Barrick is a very large Canadian publicly traded company. The company is headquartered in Toronto, Ontario.

Barrick Gold’s all-in-sustaining cost (AISC) is one of the lowest across its gold peer group. In most cases, this means that the company can continue to sustain profits in an environment where gold prices are falling.

Barrick Gold has been involved in a lot of merger and acquisition transactions over the past several years. The company’s focus has been on optimizing and streamlining operations.

Barrick Gold stock trades on the Toronto Stock Exchange under the ticker ABX as well as on the New York Stock Exchange under the ticker GOLD.

The company’s gold and copper mining operations are globally diversified across several continents. Barrick Gold has a good dividend track record and will likely continue to pay an attractive yield if gold prices remain stable.

Barrick is a low-cost gold producer offering a great forward dividend yield to investors that may be a very attractive addition to your TFSA (especially if you are concerned about rising inflation).

Best Investment Strategy for TFSA

Since a TFSA allows you to avoid paying taxes on any sort of gains within the account, it is important to think about what to include inside of your TFSA from a tax perspective.

In Canada, interest income is taxed the least out of interest, dividends, and capital gains. For a long period of time, interest rates and yields were trending lower and lower, leading to very small interest gains for investors. The tax benefits of holding fixed income in your TFSA used to be fairly small.

With rates and yields rising, interest income can now be a very sizable portion of your total returns within a balanced portfolio.

The best strategy for a TFSA, especially when investing across different asset classes, is to include fixed-income investments inside of your TFSA while leaving more favourably-taxed investments throughout other accounts.

If you are looking to invest in stocks, it is a good idea to include stocks that pay a high dividend in a TFSA. This is because dividend income is taxed less favourably relative to capital gains.

Make sure to take a look at a comprehensive list of the pros and cons of TFSAs.

How to Buy the Best TFSA Dividend Stocks

The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:

Readers Choice
Qtrade
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Low Fees
Wealthsimple Trade
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Well-Rounded
Questrade
  • ETF buys have $0 trading fees
  • Excellent market research tools
  • Most types of registered accounts available

To learn more, check out my full breakdown of the best trading platforms in Canada here.

Conclusion

Best TFSA Dividend Stocks

The TFSA is a very versatile account that can potentially allow you to avoid paying a significant amount of taxes on your investment gains.

If you are investing in stocks, equities with a high yield are well suited for a TFSA for tax reasons. Investors typically pay more in taxes for $1 of dividend income relative to $1 in capital gains.

Although stocks typically pay dividends on a quarterly basis, you may need income more frequently than this. Be sure to check out our list of the best Canadian dividend stocks that pay a monthly dividend.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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