Investors looking to maximize their 2026 tax-free savings account, or TFSA, contribution limit should consider TFSA stocks that pay dividends. The tax-free dividend income from these stocks can benefit from meaningful compounded growth over the years due to dividend reinvestment within this tax- free environment.
Let’s take a look at a TFSA stock that’s entering a period of strong growth after years of heavy investment and struggles.
Northland Power: Down but not out
In the last five years, Northland Power Inc.’s (TSX: NPI) stock has had a rough time. In fact, it has fallen 46% during this time, as the company was in a period of heavy capital investment. Delays, a high debt load, and eventually, a dividend cut sealed the fate of Northland stock.
But today, things are turning the corner as many of Northland’s major projects are nearing completion. For example, the Baltic Power offshore wind project in Poland has reached a major milestone. First power was achieved last quarter, and it’s on track for commercial operation later this year.
In total, Northland has five projects that are coming into commercial operation this year or next. These projects will bring 2.5 gigawatts of new capacity. This will translate into a meaningful increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flows as they come online.
TFSA dividend income
Northland Power stock is currently yielding a very respectable 3.3%. And, its accelerating free cash flow growth profile in the coming years means that this dividend could possibly be raised in time.
The power business is capital intensive, but also defensive and essential. Northland Power has put in the time and money to grow its power base significantly over the last many years. Today, this TFSA stock is entering a period where it will finally enjoy the fruits of this labour.
For investors, this means that Northland Power is an ideal TFSA stock for reliable and growing dividend income. It pays out monthly, appealing to those investors who appreciate a regular monthly paycheque that’s tax-sheltered within a tax-free savings account.
Valuation
I have owned Northland Power’s stock for many years as part of a diversified portfolio. I’m happy with its performance and with the dividend income that it has provided. I’m also happy with the fact that Northland Power has given my portfolio exposure to the clean energy industry.
In terms of valuation, Northland Power stock is trading at 21 times this year’s expected earnings. After years of significant capital investment, the next few years will see a significant boost to earnings and cash flows, thus driving up Northland Power’s stock price and investor interest in it.
The bottom line
Northland Power stock is an ideal TFSA stock today for investors looking to maximize their 2026 contribution limit as its growth profile accelerates. Looking ahead, the company will benefit from electricity demand growth that has not been seen in decades. This is being driven by industrial activity, data centres, electrification, urbanization, and energy security. Northland Power is well-positioned to respond to this demand and it will benefit greatly from it.