The TFSA is a great vehicle for building retirement wealth when used wisely.
What’s the secret?
Canadians have the opportunity to purchase top dividend-growth stocks inside their TFSAs and invest the full value of the dividends to purchase new shares. This sets off a powerful compounding process that can slowly grow a modest investment into a sizeable nest egg for the golden years.
The best stocks have proven track records of dividend growth and tend to operate in industries with wide moats.
Let’s take a look at Telus Corporation (TSX:T)(NYSE:TU) and Enbridge Inc. (TSX:ENB)(NYSE:ENB) to see why they are solid picks.
Telus
Telus operates in a sweet spot in the Canadian communications industry.
The company has a strong national network of both wireless and wireline infrastructure that continues to grow through focused investments. At the same time, management has avoided the temptation to plough billions into media assets.
By investing in its network and customer-first initiatives rather than sports and TV assets, Telus enjoys superior customer satisfaction ratings, lower mobile churn rates, and rising average revenues per user.
The business continues to add new TV, Internet, and mobile subscribers at a steady rate, and the company’s little-known Telus Health division is quietly dominating the growing Canadian market for secure online claims and benefits management solutions.
Telus a long history of sharing profits with investors through buybacks and growing dividends. The stock currently pays a quarterly distribution of $0.44 per share that yields 4.5%.
A $10,000 investment in Telus 15 years ago would now be worth $45,000 with the dividends reinvested.
Enbridge
Enbridge is a giant in the North American energy infrastructure industry.
The stock took a hit over the past year as investors fled the coop on any name connected to the oil and gas sector, but the sell-off looks overdone.
Enbridge doesn’t produce oil, natural gas, or natural gas liquids; it simply transports the commodities to the end users and charges a fee for providing the services. As a result, plummeting energy prices directly impact less than 5% of the company’s revenue.
With oil prices still under pressure, investors are concerned a prolonged rout will hinder infrastructure growth. That is certainly possible, but Enbridge has a large backlog of projects on the go and enough firepower to drive growth in other ways.
The company is working on $18 billion in new infrastructure that should be completed and in service by 2018. As the new assets begin to transport product, revenue will rise, and Enbridge plans to hike the dividend by 8-10% annually over the next three years.
Beyond that timeline, a recovery in the energy sector should be well underway. If not, Enbridge is large enough to grow through acquisitions. The stock currently pays a dividend that yields 4%.
A $10,000 investment in Enbridge 15 years ago would now be worth $112,000 with the dividends reinvested.
