When building a retirement nest egg, Canadians have two tax-sheltered account choices. The Registered Retirement Savings Plan (RRSP) allows Canadians to grow their untaxed savings in a tax-free environment, though the taxes are due once their nest egg is taken out of the RRSP after retirement. It’s a solid financial instrument that helps millions of Canadians build decent-sized nest eggs for retirement.
However, the second choice, the Tax-Free Savings Account (TFSA), garners far more attention. That’s partly because whatever you take from this account, whether it’s dividend income or your entire nest egg, is completely tax-free. However, one of the main reasons it’s so admired is that you can access your TFSA funds and assets before retirement, too.
This also makes it ideal for building a passive-income stream, usually with the right dividend stocks.
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A utility company
If you are looking for dividend stocks that you can keep in your TFSA for decades and effectively never sell, Fortis (TSX:FTS) is an easy choice.
Not only is it a utility business, which is one of the safest and most stable business models with consistent and reliable revenue streams, but it also has a geographically diverse portfolio. It operates in multiple markets, including the Caribbean, with over 3.5 million electric and natural gas customers.
Another layer of safety that this business offers is that 99% of its assets are regulated, so there is minimal price fluctuation, which leads to stable revenues that fund its dividends and operations.
Even more impressive than its business model is its dividend history—49 consecutive years of dividend growth, making it the second oldest Dividend Aristocrat in Canada. It’s offering a decent 4.4% yield right now. The capital-appreciation potential is nothing compared to its stellar dividends, but it’s much better than being non-existent.
A railway company
Canadian National Railway (TSX:CNR), once a crown corporation, is currently the largest railway company in Canada by market cap and one of the largest in North America in terms of total railway lines it controls and other assets.
Despite trucks becoming the preferred mode of cargo transport inland, railways still hold a prominent position in the supply chain. They are cheaper and, in some cases, faster than trucks, especially for bulk transportation.
They are also greener and more energy efficient, which is an interesting factor to consider from an ESG (environmental, social, and governance) investing perspective.
But the Canadian National Railway isn’t just an impressive pick from a business model angle. It’s a well-established Dividend Aristocrat offering a modest 2% yield. It’s also a decent growth stock that rose by about 137% in the last 10 years.
Foolish takeaway
The two stocks offer two different combinations of growth and dividends. While both are Aristocrats with rock-solid dividends, Fortis is a “heavier” choice from a passive income perspective, while Canadian National Railway offers better growth, which may allow you to generate a passive income differently.
