2 Top Canadian Dividend Stocks to Help Build Retirement Wealth in Your TFSA

Here’s why Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Suncor Energy Inc. (TSX:SU)(NYSE:SU) deserve a closer look today.

| More on:
The Motley Fool

Canadians are searching for ways to set aside some substantial cash to fund a comfortable retirement.

One popular strategy involves owning quality stocks inside a Tax Free Savings Account (TFSA) and using the dividends to buy more shares. This takes advantage of a powerful compounding process that can turn a modest initial investment into a significant nest egg over two or three decades.

When the time come to cash out, all the capital gains are yours to keep.

Let’s take a look at two Canadian stocks that deserve to be on your TFSA radar.

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS)

Investors often skip Bank of Nova Scotia in favour of its larger peers, but that might lead to missed opportunities, especially in the coming years.

Why?

Bank of Nova Scotia has invested billions to build a large international business, primarily focused on Mexico, Colombia, Peru, and Chile. These four countries make up the Pacific Alliance, which is a trade bloc set up to promote the free movement of goods and capital. Combined, the four markets are home to more than 220 million people.

As the middle class grows, demand for loans and investment products should increase and Bank of Nova Scotia is well positioned to benefit.

The international operations already account for nearly 30% of Bank of Nova Scotia’s net income, providing a nice hedge against any potential downturn in the Canadian economy. The bank continues to make strategic acquisitions in the region, so investors should see the earnings contributions from Latin America rise in the coming years.

Bank of Nova Scotia has a strong track record of dividend growth. The current payout provides a yield of 4.3%.

A $10,000 investment in Bank of Nova Scotia 20 years ago would be worth about $90,000 today with the dividends reinvested.

Suncor Energy Inc. (TSX:SU)(NYSE:SU)

Suncor is Canada’s largest integrated energy company with oil sands, refining, and retail businesses.

The diversified operations all along the value chain set Suncor apart from its peers, and the unique structure is a big reason the stock held up so well during the oil rout.

Suncor took advantage of the downturn to add strategic assets at attractive prices. This provided a cost-effective boost to its resource base and production. In addition, the company pushed ahead with two major projects, Fort Hills and Hebron, which are now complete. As production ramps up, investors should see a nice increase in cash flow available for distributions.

Suncor raised its dividend by 12.5% for 2018, and steady growth should continue, even if oil prices remain at current levels. The distribution provides a yield of 2.8%.

A $10,000 investment in Suncor 20 years ago would be worth more than $110,000 today with the dividends reinvested.

The bottom line

The strategy of buying top dividend-growth stocks and investing the distributions in new shares is a proven one. It just takes some time to find the right companies and the discipline to hold them for the long haul.

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 Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

Canadian dollars are printed
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Toronto-Dominion Bank (TSX:TD) stock could do well in the year ahead.

Read more »

monthly desk calendar
Dividend Stocks

Monthly Income: Top Dividend Stocks to Buy in November

Here are two of the best monthly dividend stocks in Canada you can buy in November 2024 and hold for…

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »