Feeding your TFSA? Try the shares of two grocery chains, Metro Inc. and Loblaw Cos.
Telus Corp. is another possibility, as are rail giants Canadian National Railway and Canadian Pacific Railway. All of these stocks are total return stars. Among the blue chips in the S&P/TSX 60 index, they've delivered the highest annualized five-year total returns, which are based on share price changes plus dividends.
Stocks like these are a great way to take advantage of the tax freedom that TFSAs offer. Stocks with high total returns typically pay out a rich stream of dividends and deliver strong long-term share price growth. Dividend income and capital gains receive advantageous tax treatment in non-registered accounts, but you have multiple issues to deal with at tax time. In a TFSA, there are no T slips to wait for, and no hunting around to find out how much you paid for the shares you just sold. Of course, there are also no taxes owing on dividend income or capital gains on shares that you sold at a profit.
Total return stocks can certainly go in an RRSP, but remember that your withdrawals in retirement will be counted as regular income. You won't have the tax-free withdrawals you get with a TFSA and you miss out on the tax benefits that dividends and capital gains receive in non-registered accounts.
To find some solid total return candidates for TFSAs, I used the watchlist feature on Globeinvestor to create a list of stocks in the S&P/TSX 60 index. I then used the dividend view to order the index stocks by their five-year total return. These stocks aren't buy low opportunities, but they have demonstrated resilience over a challenging period of time. Let's look at some of the 60 index shares that offered the highest five-year total returns:
- Grocery stocks: Consumer staples is a steady sector at uncertain times like these for stocks. Metro offers a comparatively low yield of 1.2 per cent, but an excellent record of dividend growth. Loblaw's dividend growth has lagged Metro, but it still has the 11th highest total return over the past five years. Metro ranked third.
- Railways: CP and CNR have similar five-year total returns at close to 20 per cent, but CNR has the stronger dividend growth record over the past five years.
- Telecom: Both Telus and BCE are Top 10 total return stocks in the past five years, and they both have solid dividend growth histories.