Written by Jed Lloren at The Motley Fool Canada
If you’re hoping to achieve financial independence, it’s important to make use of tax-advantaged accounts. In Canada, there are a few of these accounts available to investors. However, in my opinion, the most important one to max out would be a Tax-Free Savings Account (TFSA). As its name suggests, a TFSA allows investors to generate gains and withdraw earnings tax-free. That could help you snowball your account much quicker than by using other types of tax-advantaged accounts.
It’s important to note that Canadians are limited in how much they can contribute to a TFSA. Fortunately, that limit increases each year. In 2023, Canadians were given an additional $6,500 of contribution room in their TFSAs. One thing to note is that these contribution rooms are cumulative. That means if you turned 18 before 2009 and have never contributed, you could buy $88,000 worth of stocks today.
If you do decide to invest using a TFSA, I would recommend focusing on dividend stocks. This is because dividend stocks tend to be less volatile than growth stocks. That provides investors with a margin of safety since any losses incurred in a TFSA can’t be claimed. In addition, it would allow investors to generate a source of passive income that they can withdraw tax-free. That could help you achieve financial independence in the future.
In this article, I’ll discuss two dividend stocks that investors should consider using their 2023 contribution room on.
This is one of the best dividend stocks around
When it comes to dividend stocks, Fortis (TSX:FTS) is often one of the first names that comes to mind for me. If you’re unfamiliar, Fortis provides regulated gas and electric utilities to more than three million customers. It operates in Canada, the United States, and the Caribbean. What makes Fortis such an interesting investment is its business model. Due to the stable nature of revenue for utility companies, Fortis is able to forecast possible earnings many years in advance, allowing them to plan for dividend raises.
Looking at a list of Canadian Dividend Aristocrats, we see that Fortis is one of the most impressive dividend stocks in the country. It holds a 49-year dividend-growth streak, which is the second-longest of its kind in Canada. Fortis has already announced plans to continue raising its dividend at a rate of 4% to 6% through to 2027. If you’re in the market for a dividend stock, I recommend giving Fortis a good look.
An underrated dividend stock
Alimentation Couche-Tard (TSX:ATD) is another stock that investors should consider buying in their TFSA. You might now know it by this name, but don’t feel bad because many Canadians may also not be aware of how large this company actually is. Alimentation Couche-Tard operates convenience stores across the world. In fact, it operates nearly 14,500 locations across 24 countries and territories. Alimentation Couche-Tard also operates under banners such as Mac’s, Daisy Mart, Circle K, On the Run, and more.
Another Canadian Dividend Aristocrat, Alimentation Couche-Tard has raised its dividend distribution for more than a decade. With a payout ratio of 12.95%, I predict Alimentation Couche-Tard could continue to raise that dividend quite comfortably for years to come.
The post 2023 TFSA Contribution Time: 2 Dividend Stocks to Buy With $6,500 appeared first on The Motley Fool Canada.
Before you consider Alimentation Couche-Tard, you'll want to hear this.
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Fool contributor Jed Lloren has positions in Fortis. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.