The Best Dividend Stocks for Your TFSA in December 2023

Posted on November 23, 2023 by Dylan Callaghan

For many beginner investors, their strategy within their Tax-Free Savings Account (TFSA) is to purchase high-risk, high-reward stocks to create significant five or 10-bagger returns over the short term and collect the profits tax-free. They tend to do this with a TFSA over their RRSPs (Registered Retirement Savings Plan) primarily because with an RRSP, any withdrawals are subject to taxes. 

However, this is the wrong way to go about it. Long-term, the TFSA is an investment account best used to build a portfolio of strong Canadian companies or exchange-traded funds (ETFs) capable of growing via capital appreciation and paying their investors dividends.

So, lets look at some of the best dividend stocks for your TFSA right now.

The best Canadian dividend stocks for your TFSA

Fortis (TSX:FTS)

Fortis dividend

Arguably one of the most reliable companies in North America, Fortis (TSE:FTS) is one of the best-performing regulated utilities of the last decade. Of note, it is dual-listed, trading on the NYSE and TSX.

To understand how Fortis can generate such consistent cash flow over multiple decades, you must first learn what a regulated utility is. The answer is relatively simple.

As a regulated utility, Fortis owns the poles, the lines, the meter box, and the means of power generation.

The company then works with the municipality to not only come to a rate that guarantees a profit for the company, but is also beneficial to the consumer.

Fortis owns all of these assets, making it virtually impossible for another competitor to step in and supply power to consumers. And this is how 99% of Fortis's earnings are generated.

With 50 consecutive years of dividend increases, Fortis has officially graduated from a Canadian Dividend Aristocrat to Canadian Dividend King. That's a huge accomplishment, with only one other company in Canada hitting dividend king status -- Canadian Utilities. 

Not only is it reliable with its dividend growth, but it is also reliable with the rate at which it grows the dividend. The company aims to keep its dividend payout ratio in the 70% range. It aims to increase the dividend by mid-single digits. With a 5-year dividend growth rate of approximately 6%, it has done just that. Simply put, it has been one of the top Canadian dividend stocks to own for a long time.

Whether you have decades of experience or are just learning how to buy stocks, we should aim to achieve the highest possible total returns from our investments. Fortis is no slouch in this regard, either. It has provided many Canadians with solid capital gains, with double-digit annualized returns over the last decade.

It has struggled as of late in the rising rate environment, primarily because options like GICs and bonds now offer attractive yields. When this happens, the premium in terms of investment income needs to be higher to justify paying for equity over a guaranteed investment.

However, all this has done has made an outstanding company even cheaper. In turbulent times, owning a best-in-class utility with consistent earnings will reduce a lot of stress.

Expect mid to high single-digit growth from Fortis in terms of earnings and revenue, and expect to pay a premium in terms of overall valuation due to the reliability of the company's profits. These are two things that Fortis has known for a long time. Often trading at a 20x or greater multiple in terms of price to earnings, the stock is hardly ever cheap.

But as the saying goes from one of the most legendary investors of all time Warren Buffett,

It's better to pay a good price for a wonderful company than a wonderful price for a good company.

Canadian Natural Resources (TSX:CNQ)

CNRL stock

Suppose you've been a Stocktrades follower for a reasonable amount of time. In that case, you probably know that we don't suggest investing in cyclical options for the long term. However, as one of the best oil producers on the planet, Canadian Natural Resources (TSE:CNQ) is undoubtedly an exception to the rule. It is one of Canada's best dividend stocks, and has been for quite some time.

If we go back over the last decade, you'll be hard-pressed to find an oil stock that has performed as well as Canadian Natural Resources.

And that is primarily because it is one of the most efficient companies in the industry, with rock bottom break-even WTI prices and exceptional management.

These two factors not only allowed the company to maintain the dividend but raise the dividend amid the pandemic while others in the industry were slashing dividends at a record pace. That's right, despite an absolute collapse in demand for crude oil and natural gas, Canadian Natural rewarded investors with a dividend raise in 2021.

This is precisely why the company's share price also held up admiringly well during the pandemic. Don't get me wrong, it still plummeted. But not nearly as much as other senior producers and not nearly as much as most junior operators.

The company maintained positive cash flow in 2020, with free cash flow above $2.2B. In this forward-looking environment, if WTI can maintain $80+ a barrel, the company's cash flow generation could, without question, skyrocket.

The company has stated that once its debt gets below $8B, it will return 100% of free cash flow to shareholders via special dividends and share buybacks. The company's debt is currently sitting at $13B, but it can easily $1B+ in free cash flow each quarter with elevated oil prices helping. 

This makes Canadian Natural the perfect option for a TFSA investment. Most of the exceptional value in share price is likely gone, but don't let the fact you've missed the "home run" opportunity with Canadian Natural deter you from checking the company out.

Most major oil companies are likely to return cash flows to investors through a dividend and buybacks. This is because many investors understand the cyclical nature of the business and would much rather the companies give cash flows back to shareholders rather than invest in new projects.

With Canadian Natural's objective to return 100% of FCF, investors should be rewarded.
So although it currently yields in the 4% range, it is highly likely that Canadian Natural will continue its multi-decade dividend growth streak and reward investors with some large increases in their passive income stream over the next while, and likely even some special dividends.

Is it a long-term hold?

Most cyclical options aren't, but Canadian Natural is so good at what it does. It is one I'd consider holding long-term.


BCE dividend

If you want to look at how compounding returns work, look no further than a total return chart of BCE (TSE:BCE). If you had invested $10,000 in this company in the mid-1990's, you'd be sitting on a whopping $260,000+ right now. A 26-bagger!

Is BCE the fastest-growing telecom in the country? Not necessarily. Is it one of the most reliable companies in North America with one of the largest economic moats in Canada? Absolutely.

These factors make it an outstanding option for investing in your TFSA.

With a market cap near $57B, the company is not only the largest telecom in Canada but one of the largest enterprises in Canada. It provides Canadians with mobile services, television, internet, and more.

With Rogers Communications' recent acquisition of Shaw, it has made major inroads into Western Canada. Telus has traditionally been the leader in the west. BCE, meanwhile, is a true countrywide brand, arguably one of the strongest and well-known in the country, just trailing Royal Bank of Canada. 

The telecom industry often offers high yields, and BCE is no exception. It's the highest yielding in the sector, typically offering a mid-6% yield. Not only does it provide a juicy dividend yield, but it has a 15-year dividend growth streak as well.

Fifteen years may seem like a short dividend streak for a company like BCE. This is due to an interruption caused by a previously impending purchase by the Ontario Teacher's plan that ultimately fell through. If the deal hadn't fallen through, BCE's growth streak would likely be sitting at 20+ years.

Many investors are mainly concerned with high dividend payout ratios for telecom companies. However, it's important to note that many have took advantage of record low-interest rates to expand and develop infrastructure, particularly 5G networks. In addition, most of this debt was long-term in nature, meaning these low rates were locked in for years. 

Capex cycles and increased spending on wireless networks can make short-term earnings and free cash flow payout ratios seem abnormally high, and BCE is no exception. With a cash payout ratio over 100%, this company's dividend looks to be at risk. However, most of the spending needed to upgrade its network to 5G is complete, meaning we should see the dividend affordability increase in 2024 and 2025. 

Overall, BCE is an excellent option for your Tax Free Savings Account and arguably one of Canada's very few "buy and hold forever" companies.

Why you shouldn't chase high returns in your TFSA

Chasing high-risk stocks can lead to Canadians permanently losing TFSA room. If you're actively trading, it can also put you in the Canada Revenue Agency's (CRA) crosshairs. If you invest your $6500 in TFSA contribution room in a high-risk stock and it goes to $0, you don't get that contribution room back.

I've known investors who have lost over $30,000 in TFSA room chasing high-risk micro-cap companies. And if you manage to make money but are deemed actively trading by the CRA, you may be hit with a tax penalty.

Even with the TFSA annual contribution limit projected to grow to $7,000 in 2024, it still takes too much time to get that precious contribution room back.

Another poor choice are high fee mutual funds. Yes, funds offer much of the same diversification benefits as ETFs, and they can outperform their underlying index, but ultimately most end up underperforming because of those fees. 

Many investors are choosing fixed income instruments for their TFSA contribution room in 2023, buoyed by higher interest rates being offered for high-interest savings accounts (HISAs) or guaranteed investment certificates (GICs). These TFSA savings accounts don't offer any capital appreciation potential, but they also won't fall if markets are weak, either. 

Typically the best rates for GICs or HISAs are found with online banks, names like Tangerine, EQ Bank, or others. You'll find much lower rates at Canada's largest banks, many of which only offer a small amount of interest for their regular savings accounts. 

Overall, these three are solid options to start your research

In this article, I highlighted three Canadian dividend stocks here in Canada that are generating strong cash flow, offer high dividend yields, and have safe dividend payouts when it comes to a percentage of their cash flows. These boring blue-chip stocks are excellent choices for your TFSA deposits. 

These may not be the flashiest of stocks on the TSX. However, it's essential to understand that the majority of the time, strong cash flow generation beats out flash.

Most of the stocks in this article took a back seat to many unprofitable high-flying companies in 2020 and the beginning half of 2021. However, they made a significant resurgence once the market came to its senses. In this market drawdown, they've proven invaluable holdings to many Canadians. 

In short, some of the best TFSA investments can also be some of the most boring ones. 

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Dylan Callaghan

About the author

Dylan is the co-founder of and an avid self-directed investor. He holds a portfolio of Canadian growth and dividend growth stocks, and believes that anyone, regardless of financial status, stands to benefit from investing in the stock market. His ultimate goal with his writing and the continual development of is to create a resource that helps Canadians, and investors from around the world, make more money and retire earlier.