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January is a great month for Canadian investors. We get to make 2020’s TFSA contributions, putting that cash to work in excellent stocks over the long term. What’s more exciting than that?
Personally, in my own TFSA, I follow a pretty simple strategy. I look to buy good companies that pay solid dividends — cash I can then reinvest into other opportunities. If everything goes to plan, by the time I’m ready to retire, I should have a TFSA that gushes cash — a tax-free source of income that’ll go a long way towards making my retirement dreams come true.
If that’s your goal too, then you’ll want to read this. Here are three Canadian stocks with generous yields that would look good in any TFSA.
Sienna Senior Living
They say the only things inevitable in life are death and taxes. I’d like to add another — getting old.
In fact, there are some nine million Canadian baby boomers who are marching relentlessly to that outcome — a massive opportunity for healthcare stocks like Sienna Senior Living (TSX:SIA). The company’s portfolio consists of 43 long-term-care facilities and 27 retirement residence properties located in Ontario and British Columbia. It also manages facilities for other owners in those two provinces.
Look for Sienna to slowly add to its portfolio over the next three to five years, as it moves towards its goal of making its long-term-care and retirement residences businesses equal. It will accomplish this by both buying existing facilities and developing new ones. It sees particular potential to build new homes in Ontario.
Financial results have been solid, with 2019’s earnings showing steady growth over 2018’s results. Same-property operating income crept some 2% higher, while adjusted funds from operations through the first three quarters of 2019 increased by 3%. That translates into a payout ratio in the 65% range, which means investors can count on Sienna’s 5.2% yield. In fact, the dividend was recently increased, which is always a good sign.
Suncor Energy
If you’re bullish on energy, it’s time to take another look at the sector. Specifically, Suncor Energy (TSX:SU)(NYSE:SU), which I think is an attractive opportunity on a couple of different fronts.
Let’s start with the company’s long-term potential. It’s the leading oil producer in Canada, dominating the oil sands. I like that strategy going forward; there’s very little exploration risk with this business model. Management can focus on best exploiting current production assets, while taking their time to decide about future expansion.
And remember, these existing oil sands assets are delivering steady cash flows today, thanks to a relentless push to bring down costs and the price of oil marching steadily higher.
But the part of Suncor’s business that really excites me is its downstream operations — assets that include numerous oil refineries and its army of Petro-Canada gas stations. This part of the company generates gobs of predictable income, no matter what the underlying price of oil does.
These downstream earnings are easily enough to cover Suncor’s dividend, which currently stands at 3.9%. And remember, the company has raised its payout consistently over the last 20 years.
Pinnacle Renewable
Pinnacle Renewable Energy (TSX:PL) makes wood pellets that are then burned to create energy. The process is Paris Agreement approved and is gaining momentum in both Europe and Asia as a cleaner alternative to coal.
In fact, Pinnacle looks poised to grow in a pretty big way over the next five to 10 years. It projects the total market for wood pellets will double by 2026. It has one new plant currently in development, and it just purchased another facility with a minority partner. And it has various expansion projects planned at other existing plants.
One advantage Pinnacle has over many of its competitors is that its facilities in Western Canada are located close enough to ports that transportation costs are quite low. This translates into some of the lowest total production costs in the whole industry, which is always a good thing.
Pinnacle shares currently pay investors a generous dividend of 6% — a payout that is easily supported by underlying cash flow.
