Investors looking for tax-free passive income could leverage the Tax-Free Savings Account (TFSA) to invest in top Canadian dividend stocks.
The TFSA is your gateway to growing passive income without the taxman taking a cut. Whether you’re collecting dividends from reliable income-generating stocks or benefiting from long-term capital appreciation, every single dollar earned in your TFSA stays where it belongs—in your pocket. So, if you seek worry and tax-free passive income, here are the best Canadian dividend stocks to buy and hold forever in a TFSA.
Source: Getty Images
Dividend stock #1
Fortis (TSX:FTS) is among the best Canadian income stocks to buy and hold in a TFSA. The utility company’s defensive business model and regulated cash flow enable it to pay and increase its dividend regardless of economic cycles.
Notably, Fortis’s 99% of earnings come from regulated utilities, implying that its payouts are relatively safe and sustainable. Furthermore, 93% of its operations are concentrated on energy transmission and distribution, a low-risk business that ensures stable and predictable returns.
Thanks to its low-risk earnings base, Fortis has raised its dividend every year for 51 consecutive years and intends to continue this streak. The company’s focus on growing its rate base will drive its future earnings and support dividend increases.
Notably, Fortis projects its rate base to increase at a compound annual growth rate (CAGR) of 6.5% through 2029. This growing rate base will enable the company to increase dividends by 4-6% annually, offering TFSA investors visibility over future dividend income. With its resilient business model, growing rate base, and a well-protected dividend yield of 4.1%, Fortis is perfectly suited for TFSA investors seeking worry-free income for decades.
Dividend stock #2
Shares of top Canadian banks could be a solid addition to your TFSA portfolio for steady passive income. It’s worth highlighting that Canada’s leading financial services companies are known for their long history of dividend payments. For instance, they have increased dividends for more than a century, making them reliable investments.
Among the top Canadian bank stocks, TFSA investors could rely on Bank of Montreal (TSX:BMO). The financial services company boasts an unparalleled dividend payment history, having distributed dividends for 195 consecutive years—longer than any other publicly traded Canadian company. Further, over the past 15 years, it has also delivered steady annual dividend growth of about 5%. Such a track record makes it a reliable income stock and highlights its ability to sustain earnings growth through economic cycles.
Bank of Montreal’s diversified revenue streams, its ability to grow its deposit base, higher loans, and focus on improving operating efficiency could continue to drive its earnings and future dividend payments. Moreover, the bank’s solid balance sheet, high-quality assets, and steady credit performance bode well for future growth.
Looking ahead, this financial services company projects a high single-digit growth in its earnings in the medium term. This consistent earnings growth will help Bank of Montreal expand its earnings and increase its dividend. Besides providing steady dividend income, Bank of Montreal stock offers a compelling yield of over 4.5%.
