If you’re looking to generate tax-free income from your TFSA (Tax-Free Savings Account), you don’t need to chase market trends or worry about daily fluctuations. Instead, a smart, long-term, Foolish Investing approach could help you turn your TFSA into a steady cash-generating machine with reliable income streams.
With $15,000 to invest, you can build a diversified portfolio of top dividend-paying stocks that offer consistent cash flow and financial security. In this article, I’ll highlight two undervalued TFSA stocks that could help you maximize your tax-free income and build lasting wealth.
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Rogers Communications stock
The first undervalued dividend stock you can consider adding to your TFSA is Rogers Communications (TSX:RCI.B). Despite its strong long-term growth prospects, short-term macroeconomic concerns have led to a 38% value erosion in its stock in the last year. With this, Rogers’s stock currently trades at $39.69 per share with a market cap of $21.6 billion. However, the recent decline in its share prices has made its annualized dividend yield look even more attractive, which currently stands at 5%.
Rogers recently reported a 6.7% YoY (year-over-year) increase in its total revenue for 2024 to $20.6 billion. Similarly, its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the year rose by 12.1% YoY to $9.6 billion, supported by cost efficiencies and steady subscriber growth. The company also posted $3 billion in free cash flow, clearly reflecting its ability to sustain dividend payouts while continuing to invest in its business.
Beyond the numbers, Rogers is working on expanding its dominance in Canada’s wireless and internet markets. Last year, it led all Canadian carriers with 623,000 net additions in mobile phone and internet subscribers. The company is also strengthening its 5G infrastructure, rolling out new cloud-based network technology, and deploying 3800-megahertz spectrum licenses to improve speed and reliability. These growth initiatives have the potential to improve its financial growth further in the years to come, which should help its share prices stage a sharp recovery.
Magna International stock
Another undervalued but fundamentally strong Canadian dividend stock TFSA investors can consider right now is Magna International (TSX:MG).
Last year, the shares of this Aurora-headquartered auto parts maker and mobility company felt the heat of inflationary pressures and slowing global light vehicle production. As a result, it tanked by 23.3%. This year, so far, concerns about the ongoing U.S.-Canada trade tensions have led to another 10% decline in its share prices as it currently trades at $54.15 per share with a market cap of $15.2 billion. Just like Rogers, MG stock also currently offers a 5% annualized dividend yield.
Even though Magna’s stock has taken a hit over the last year, its business remains solid. In the most recent reported quarter, it pulled in US$10.3 billion in sales. While the sales figure reflected a 4% YoY dip, it aligned with the global slowdown in light vehicle production. Despite this, Magna still managed to increase its net profit on a YoY basis to $484 million.
Despite short-term challenges, Magna’s consistent focus on electric vehicle innovations, automated driving technology, and electrification efforts brightens its long-term growth outlook, making it an attractive TFSA dividend stock to buy now and hold for decades.
