Retirement Income: A Top TFSA Stock to Buy This Summer

Hers is a top TFSA stock you can buy now and earn growing income for your retirement.

| More on:

The Tax-Free Savings Account (TFSA) offers a great way to build your retirement income. One important element of this strategy should be to diversify your holdings within TFSA. 

That means not putting your eggs in one basket. You should always try to buy stocks that could provide a hedge when the main market is under pressure. Pursuing a diversification strategy has become more important in this COVID-19 environment when uncertainty is high.

Unfortunately, there aren’t many top diversification opportunities available in Canada to TFSA investors. Here, the benchmark index is heavily exposed to energy, mining, and financial stocks.

That’s one big reason that TSX over the past 10 years didn’t produce much in returns, as commodities remained depressed, forcing investors to look elsewhere.

A top TFSA stock

Today, I want to introduce to you a top TFSA stock that could fit very well in any diversified portfolio. The Toronto-based Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP) has a unique business model that allows investors to take exposure to the company’s very diversified operations.

BIP owns and operates utilities, transport, energy, and communications infrastructure companies globally. BIP manages a portfolio of about US$77 billion with assets spanning five continents.

The company manages utilities and power transmission system in North and South America. It has 37 ports in North America, the U.K., Australia, and Europe, and approximately 3,800 kilometres of toll roads in South America and India.

With all these acquisitions in the infrastructure space, the company’s main objective is to generate a long-term return of 12-15% on equity, while targeting annual distribution growth of 5-9%.

According to Brookfield, its strategy is to acquire high-quality businesses on a value basis, actively manage operations, and opportunistically sell assets to reinvest capital into the business.

470% return 

When you look at numbers, there is no doubt that the company has been successfully executing its plan. During the past 10 years, BIP stock has delivered 470% return, including dividends.

After a more than 45% surge since the March dip, BIP stock is trading at $57.50 with an annual dividend yield of 4.63%. At this level, some analysts don’t see much upside potential.

“BIP’s risk-averse (long-term contracts) and diversified business model (across industries and geographic locations) offers a stable cash flow stream with solid distribution growth,” Citi analyst Ryan Levine said in a recent note. “Despite our view on the stability and growth of BIP’s cash flow stream, the shares appear appropriately valued.”

But if your horizon is long term, BIP’s yield still looks attractive for your TFSA, even after the powerful rally.

The reason is that BIP generates predictable and growing cash flows that allow the operator to regularly hike dividends. In Canada, such an ideal combination is hard to find in a single company.

Bottom line

With its enduring competitive advantage, BIP is a top stock for any TFSA. These utilities, power lines, and toll roads require a lot of investment, and not everyone can challenge the company’s first-mover advantage.

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 doesn't own shares of the companies mentioned in this article. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS and Brookfield Infrastructure Partners.

More on Dividend Stocks

Make a choice, path to success, sign
Dividend Stocks

Is Fortis Stock a Buy for its Dividend Yield?

Fortis has increased the dividend for 51 consecutive years.

Read more »

Middle aged man drinks coffee
Dividend Stocks

Is Brookfield Stock a Buy, Sell, or Hold for 2025?

BAM stock recently jumped after beating earnings. But is it still a buy, or is it better to wait?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Top Canadian Utility Stocks to Buy in November

Are you looking for some top Canadian utility stocks to own? Here's a look at three must-have options for any…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is First Capital REIT a Buy for its 4.8% Yield?

First Capital is a REIT that offers you a tasty dividend yield of 4.8%. Is this TSX dividend stock a…

Read more »

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

TFSA Passive Income: 3 Stocks to Buy and Never Sell

Stocks like Fortis Inc (TSX:FTS) are worth holding long term.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

Canadian Utility Stocks to Buy Now for Stable Returns

Given their regulated business, falling interest rates, and healthy growth prospects, these three Canadian utility stocks are ideal for earning…

Read more »

nuclear power plant
Dividend Stocks

The Best Canadian Stocks to Buy and Hold Forever in a TFSA

TFSA investors can buy and hold these Canadian stocks to generate above-average, tax-free returns over the next decade.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

Is Telus Stock a Buy for its 7.3% Dividend Yield?

Although the 7.3% dividend yield Telus offers is attractive, it's just one of many reasons why the telecom stock is…

Read more »