How to Make Money in a TFSA With Dividend Stocks

Canadians are lucky to have the opportunity for tax-free wealth building through the TFSA (Tax-Free Savings Account). Any chance you can get to invest tax-free should be used and maximized.

Dividend investing fits perfectly with a TFSA strategy. As long as the dividend stocks you hold are domestic, you won’t get charged any income tax on the dividend income you earn.

Reinvest your dividend income to compound TFSA value

If you don’t need the income, you can reinvest the proceeds into buying more stocks. More stocks equal more income and more income equals more stocks you can buy. Over time, it can compound into a considerable amount of wealth.

When I invest in dividends, I want stocks that can sustainably pay and grow their dividend income. While overtly high-yielding stocks (over 7%) can be attractive for their immediate cash return, they often have an elevated yield due to some risk the market is factoring in.

As a result, I prefer to hunt for dividend stocks with a yield in the range of 1% to 5%. I want my companies to be able to sustain dividend growth from growing cash flows and earnings. I also want them to have room to re-invest capital into growth, not just pay it all out in dividends.

If I had $20,000 to invest in my TFSA, here are two stocks I’d be happy to own for both income and capital returns.

AltaGas: A resilient business with growth prospects

The first stock I’d put $10,000 of TFSA cash into is AltaGas (TSX:ALA). It has a 2.5% yield. You would earn $62.31 per quarter or $249.24 annually.

While that may not seem like a lot, AltaGas has been delivering very strong capital returns as well. Its stock is up 27% in 2026 and 122% in the past five years.

AltaGas operates two relatively boring businesses: a U.S. natural gas utility and a Canadian midstream/export business. Yet, both are growing at high single-digit rates. In fact, very strong energy prices may support it hitting the high end of its guidance range in 2026.

The company has grown its dividend by a 6% compounded annual rate since 2021. It continues to target 5–7% dividend growth for the coming years. This is a great stock for its low-risk business model, steady growth, and growing dividend.

Chartwell: A TFSA stock riding a long tailwind

Chartwell Retirement Residences (TSX:CSH.UN) is another stock to buy with $10,000 in a TFSA. It has a 3% yield. You would earn $24.75 monthly or $296.98 annually.

This is Canada’s largest retirement residence provider. It has a strong brand and national scale. As baby boomers retire and age, Chartwell is seeing a surge in demand for retirement and care communities. Yet, current supply is not keeping up with growing demand. This all means Chartwell should enjoy strong pricing power.

It just delivered a quarter with 24% revenue growth and 35% funds from operations per unit growth. It also announced a 2% distribution increase, the first increase in several years. With operations normalized coming out of the pandemic, a permanent dividend growth trajectory seems reasonable.

This stock is a great bet for modest income and exposure to a long tailwind of growth.

The Foolish takeaway

When you are investing in your TFSA, focus on business quality over dividend yield. Look for stocks that can both grow and pay a growing dividend. You want to both preserve and grow your capital and enjoy a rising income stream over time.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYAltaGas$53.53186$0.335$62.31QuarterlyChartwell Retirement Residences$20.86479$0.0516$24.75Quarterly

The post How to Make Money in a TFSA With Dividend Stocks appeared first on The Motley Fool Canada.

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More reading

• Income Investors: These Canadian Companies Are Raising Payouts Again
• The Surprising Reason Boring Utility Stocks Are Worth a Second Look Right Now
• The Best $10,000 TFSA Approach for Canadian Investors
• My 2 Favourite Stocks for Monthly Passive Income
• 3 TSX Dividend Stocks That Retirees Might Want on Their Radar

Fool contributor Robin Brown has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.