Many investors get fixated on high dividend yields when filling a TFSA, thinking bigger payouts automatically mean better returns. But yield alone is a lagging indicator — it doesn’t tell you whether the company can sustain that payout or grow earnings over time. A stock with a stratospheric yield might be pricing in risk, not rewarding strength, and that can lead to capital losses or dividend cuts that wipe out your gains.

Instead of chasing the highest yields, focus on quality income growth. That means looking for companies with strong free cash flow, solid balance sheets and a track record of increasing payouts over time. These characteristics tend to deliver more reliable income and total returns, which matters more in a TFSA where dividends and capital gains grow tax-free.

One sensible approach is to build around dividend growers — firms that raise their payouts regularly because they’re expanding their earnings. These companies may not offer the highest yield today, but as distributions increase year after year, the real income you collect compounds inside your TFSA. This path often beats starting with a high-yield stock that stagnates or cuts its payout.

Another strategy is using diversified income ETFs rather than single high-yield stocks. ETFs that hold baskets of dividend growers or income-oriented assets — like utilities, financials, or covered-call strategies — spread risk and reduce reliance on any one company’s fortunes. Diversification smooths cash flow and mitigates the impact of any single dividend cut.

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Setting clear allocation rules, such as limiting exposure to any one high-yield name and tilting toward sectors with secular growth drivers, also helps. Rather than chasing yield spikes caused by temporary market dislocations or fear-driven sell-offs, prioritize fundamentals and consistency.

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In short: don’t let yield be the only or even the primary reason you buy a stock in your TFSA. Instead, target businesses and income vehicles with credible long-term cash-flow growth, sustainable dividends, and diversification. Over time, that approach tends to deliver stronger, more dependable tax-free income and less portfolio stress than chasing the highest yields on the board.