TFSA: 3 Canadian Dividend Stocks for Your $6,500 Room Contribution

Canadian inflation fell to 2.8% in June. This is good news for households whose savings are losing purchasing power at a much slower rate. However, the increase in income is better to prevent investors from any further inflation and to repair retirement nest eggs that have been cracked by recent inflation bouts. A Canadian Tax-Free Savings Account (TFSA) can hide your investments and savings from the tax man, and I recommend investors diligently maximize their $6,500 annual TFSA contribution room for 2023.

The following Canadian dividend stocks can boost the income-generating potential of your TFSA portfolio. The list includes a small income-boosting real estate play before the housing market fully recovers.

Suncor stock

Suncor strength (TSX:SU) is a blue-chip Canadian integrated energy stock that income-oriented investors can load up on for its well-covered 5.4% dividend yield, and stock price growth potential.

Suncor’s stock has lost the love of the market after a 55% dividend cut during the COVID-19-induced oil-price panic in 2020. The shares have been left behind by rates of industry valuation recovery, as energy stocks push the TSX higher in 2022. SU stock trades at pre-pandemic levels today, while peer industry stocks are better priced. However, management can be forgiven for taking precautionary action to preserve the company’s balance sheet during an unprecedented economic crisis, and while the price of oil fell into the negative for the first time.

Fast forward to 2023, Suncor has more than restored its 2020 dividend, is focused on reducing operating costs, and has a new chief executive officer focused on reducing costly debt and increasing shareholder returns through dividends and share repurchases.

Suncor stock is trading cheaply at a market cap-to-free cash flow multiple of 8.8, which is lower than the pre-pandemic multiple of 11.6 seen in February 2020. Investors can buy Suncor’s growing cash flow, and future dividends more cheaply now than they could before COVID-19.

Buy this Canadian Net REIT with a tax-free 6.9% yield

Canadian investors can get maximum tax shelter on real estate investments if they buy real estate investment trusts (REITs) in a TFSA. Canadian REITs are generally exempt from annual income tax, and investors can avoid paying personal income tax on REIT distributions under the TFSA shelter.

Canadian Net Real Estate Investment Trust (TSXV:NET.UN) is a small net-lease structured (a low cost and low operating risk business model) REIT that grows its net operating income and pays a monthly distribution that yields a juicy 6.9% annually. The small REIT reported a 100% occupancy rate in the first quarter of 2023, grew adjusted funds from operations (AFFO) by 6.6% year over year and paid 57% of its AFFO in monthly distributions in the first quarter of 2023.

Canadian Net REITs can increase the passive income of a TFSA investor. Units have traded 22% lower year to date, as publicly traded real estate has taken on depressed prices, and follows a Canadian Net REIT property sale last quarter.

Interestingly, the recent sale closed at a premium to the book value of the small property.

The trust has already declared monthly distributions of 2.875 cents per unit through September 2023. Buying a small, beaten-down REIT with a small portion of your $6,500 TFSA contribution room for 2023 could add a reliable passive-income-producing asset to your investment portfolio.

Nurture your TFSA growth dreams with Pizza Pizza Royalty stock

TFSA investors looking to buy monthly dividend stocks may also want to check out Pizza Royalty (TSX:PZA) and its 6% yield. The $373 million quick-service restaurant franchisor has a growing portfolio of more than 600 outlets across Canada and is expanding into Mexico. It stands to receive increasing cash inflows of royalties from a growing network of franchisees based on periodic sales.

Income-based dividend stock investors welcome how the cash flow-generating model has performed in their cash cow. Canada’s recent food inflation battles boosted Pizza Pizza’s royalty receipts as menu prices rose. The company reported 13.6% same-store growth and a 16.1% year-over-year increase in royalty pool sales for the first quarter of this year. It raised monthly dividends by 3.6% in March and a further 3.5% in June.

Additionally, Pizza Pizza’s stock price has gained 11% year to date and is up 81% over the past three years. The momentum is positive, and the pizza maker can feed your TFSA’s growth aspirations.