The Tax-Free Savings Account (TFSA) is rightly adored for the potential it offers for tax-exempt growth and flexibility. Advice for investors of all stripes is dependent on risk tolerance. Higher-risk investors, particularly those under 50, should be looking at small-cap and emerging market equities that have high-growth potential. Investors with lower risk tolerance should look to bonds and fixed-income products.
I am going to ignore these little details right now and tell you that you should have Toronto-Dominion Bank (TSX:TD)(NYSE:TD) in your TFSA. Let’s take a look at some reasons why this Canadian banking giant is a must-own.
Long-term growth potential
The share price for TD has experienced over 60% growth in a five-year period and 12% year over year, even after a 2017 that has seen the stock fall 3%. TD has one of the largest market shares of any Canadian equity, and it’s one of the most powerful brands in the country. The bank promises to be a key facilitator in driving Canadian economic growth well into the first half of this century. If past performance is any indication, TD will continue to offer impressive growth, which will be tax-free for investors that add this valuable stock to their TFSAs.
Largest U.S. exposure of any Canadian bank
TD has by far the largest exposure of any of the major Canadian banks. U.S. economic growth has outpaced Canada in recent years, let alone its gross GDP, making it the most powerful economy in the world. The U.S. market has shown tremendous strength since 2009 in one of the longest bull markets in recent memory. TD has segments in U.S. real estate that were larger than originally reported. After the crisis of 2008-2009, the U.S. real estate market has regained its strength, especially since 2012. The footprint in the U.S. allowed TD to make gains in U.S. markets, which should provide good potential growth for the future.
Attractive dividend for income
TD last announced a dividend of $0.60 per share, representing a dividend yield of 3.75%. Canadian dividend-yielding equities are best held in a TFSA, as U.S. dividends are subject to a 15% excise tax. It is worth noting that this tax is not applicable for RRSPs. Dividend-yielding stocks with high-growth potential provide a nice double whammy for investors, especially in a TFSA. In addition to tax-free capital growth on the investment, you can also add the appreciation acquired through the dividend. Banks also have a good track record in paying out dividends to investors.
The stock for TD has seen a bit of a swoon thus far in 2017. Apart from a major news story that hurt shares, TD has consistently delivered impressive quarterly results. Taking in the above factors, investors can feel very good about adding TD to their TFSAs. It is a stock with a great long-term outlook and a dividend to provide income to boot.
