Start Your TFSA With These 3 Safe Dividend Stocks

Starting your TFSA retirement fund with safe dividend stocks such as Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is a good strategy for new and young investors.

There is no clear saving path for young Canadians who are just embarking on their investing journey. Equity markets and real estate are near their peaks. Bank saving accounts, GICs, and bonds are paying next to nothing.

Despite this dismal situation, young savers have one thing on their side. Their time horizon is one of the major factors in building wealth. The earlier you start, the more you will save, and the better the return you will make on your investments.

In Canada, the Tax-Free Savings Account (TFSA) is a great tool for young savers to launch their retirement funds. This is a tax-free vehicle, meaning you don’t have to pay tax on your capital gains and dividends. You can withdraw your investments anytime without a tax penalty. And any withdrawal doesn’t reduce your TFSA limit.

Here are three safe dividend stocks to launch your TFSA retirement fund.

Canadian banks

Canadian banks should be on the top of your shopping list when you’re starting to build your TFSA portfolio. Canada’s top lenders offer stable and growing dividends. On average, they distribute 40-50% of their income in dividends each year.

Among the top Canadian lenders, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is my favourite dividend stock for two reasons.

First, it’s the most international bank with a huge growth potential in the Pacific Alliance — a Latin American trade bloc comprising Mexico, Peru, Chile, and Colombia. This diversification has provided depth to its earnings, as each of these countries has attractive economic fundamentals and a strong banking and regulatory system.

Second, the lender has a great history of rewarding its investors. It has paid dividends every year since 1832, while it has hiked its payouts in 43 of the last 45 years. The history tells us that you can count on Bank of Nova Scotia for a regular income stream.

I do not see this generous dividend policy changing anytime soon, given the bank’s robust international growth and solid position at home. This favourable outlook makes Bank of Nova Scotia a great buy-and-hold stock for your TFSA portfolio.

Utilities 

Energy infrastructure providers and utilities are my next favourite picks for young savers. These companies belong to a market segment which is known for its safety and income growth. These companies operate under fee-based cash flow models, which protect their revenues in any downturn commodity cycle.

Enbridge Inc. (TSX:ENB)(NYSE:ENB) and the Toronto-based Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) will suit your investing objectives.

Enbridge operates the world’s longest crude oil and liquids transportation system, which insulates it from the cyclical nature of the commodity markets. The company is a leader in gathering, transportation, processing, and storage of natural gas in North America.

Algonquin is a diversified utility with over $10 billion of assets in the U.S. and Canada. Through its two business groups, Algonquin provides rate-regulated natural gas, water, and electricity services to over 750,000 customers in the U.S.

Both Algonquin and Enbridge are solid dividend stocks for your income portfolio. Enbridge is targeting 10% dividend growth each year until 2020, while Algonquin plans to increase its dividend payout by 10% each year for the next five years.

The bottom line

Investing in dividend stocks that offer growth and stability to your portfolio is a smart way to start your TFSA fund. This is a less-risky approach for young investors. You can take more risky bets, such as investing in high-growth technology stocks, once you have deepened your knowledge about markets and investing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Haris Anwar owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

profit rises over time
Dividend Stocks

Buy 2,990 Shares of This Stock for $165.25/Month in Passive Income

A high-yield dividend stock can transform your investment into monthly passive income streams.

Read more »

close-up photo of investor Warren Buffett
Dividend Stocks

3 Warren Buffett Stocks to Buy Hand Over Fist in November

Warren Buffett has been buying Occidental Petroleum (NYSE:OXY) hand over fist. He previously owned the similar Canadian oil giant Suncor…

Read more »

dividend growth for passive income
Dividend Stocks

Is Intact Financial Stock a Buy for its 1.8% Dividend Yield?

Intact Financial's dividend is not that attractive, but its strong history of execution and dividend growth are compelling factors for…

Read more »

Hourglass and stock price chart
Dividend Stocks

Where Will Brookfield Stock Be in 5 Years?

Based on its recent successes, Brookfield Corp (TSX:BN) looks poised to be more valuable in five years' time than today.

Read more »

hand stacks coins
Dividend Stocks

The Smartest Dividend Stocks to Buy With $400 Right Now

The market is full of dividend stocks to buy. Here's a look at two options that cater to both growth…

Read more »

ways to boost income
Dividend Stocks

This Top TSX Dividend Stock Down 10.78% Is Ready for a Rebound

The rebound of an underperforming but top TSX dividend stock is coming due to a significant product diversification.

Read more »

Canadian Dollars bills
Dividend Stocks

3 Dividend Stocks to Supercharge Your Passive Income

These companies are known for their consistent payout histories and high yields can supercharge your passive-income portfolio.

Read more »

space ship model takes off
Top TSX Stocks

My 5 Favourite Stocks to Buy Right Now

There are plenty of great stocks on the market. Here's a look at my favourite stocks to own for growth…

Read more »