1 Sector That Belongs in Your TFSA

Some assets are better suited to your TFSA than others. Real Estate Investment Trusts like Granite REIT (TSX:GRT.UN) are well-suited for the tax-free account.


Image source: Getty Images

You now have all that new TFSA room, so it’s time to start thinking about what you want to buy. The good news is that at the moment there are still great deals on many of the Canadian stocks. The TFSA is a tax-free vehicle, so it would make sense to make the most of this account.

Since Real Estate Investment Trusts (REITs) are great income providers and they don’t benefit from the dividend tax credit, it would make sense to buy these stocks within your TFSA account. Canada is fortunate to have a number of excellent REITs that also happen to pay generous distributions.

Chartwell Retirement Residences (TSX:CSH.UN)

With the demographics of an aging population, Canada is a great place to capitalize on the retirement needs of the elderly. Chartwell is Canada’s largest provider of senior housing, so they are well positioned to benefit from this trend. The company owns and operates units all over the country.

In the third quarter of 2018, Chartwell demonstrated its ability to perform financially. Funds from operations increased by 5.6% over the same quarter of 2017. These results helped the company to continue paying its 4% distribution. The distribution has been growing steadily, including a 2.1% increase earlier this year.

The biggest downside to the company is its heavy exposure to the Ontario real estate market. Over 50% of its properties are in that province, meaning its book value could be negatively affected if there were a contraction in real estate prices.


Operating in an entirely different industry than Chartwell, Granite is another Canadian-based REIT that focuses on providing properties to the industrial sector. Its largest client is Magna International Inc. (TSX:MG)(NYSE:MAG), a major auto parts manufacturer. This relationship is both a blessing and a curse, however. While Magna is a solid company, the close relationship means that much of Granite’s fate is tied to the auto parts company.

Nevertheless, Granite is executing well on its commitments. In the third quarter, Granite posted increased revenue of 10.3% over the same quarter a year earlier. Adjusted EBITDA was also up by over 30.9% as compared to 2017. Granite pays a distribution of around 4.78% at the moment, which includes an increase of 2.9% announced in Q3.

REIT Exchange-Traded Funds (ETFs)

If you’re nervous about individual companies, you might be better off choosing one of Canada’s ETF alternatives. The iShares S&P/TSX Capped REIT Index Fund (TSX:XRE), BMO Equal Weight REITs Index ETF (TSX:ZRE), and Vanguard FTSE Canadian Capped REIT Index ETF (TSX:VRE) all are decent choices with fairly similar holdings. The biggest differences are in the capped vs equal weighting method of determining percentage allocated to each holding, Management Expense Ratio (MER), and distribution yield.

The XRE currently has a yield of 4.63% and a MER of 0.61%. ZRE has a similar yield of 4.67% and a similar MER of 0.61%. The VRE has a smaller yield than the other two at 3.63%, but it also has a smaller MER of 0.39%. So the biggest decision to make is if you want a lower MER or a bigger distribution.

Just start investing

If you’re looking for yield, any of these companies or ETFs would be a good fit for your portfolio. Whether you take a swing at an individual company or decide to go with a more diversified ETF, any of these should do well over the long term within your TFSA.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kris Knutson has no position in any of the stocks mentioned.

More on Dividend Stocks

edit Woman calculating figures next to a laptop
Dividend Stocks

Should You Invest in BCE Stock for its Dividend?

BCE stock is not yet out of the woods. But this article could change your perspective about the stock and…

Read more »

sale discount best price
Dividend Stocks

Bargain Hunting for Dividends: 3 High-Yield Stocks Haven’t Been This Cheap in Years

Enbridge (TSX:ENB) stock's key enterprise value multiple reached a new multi-year low recently. BCE remains a high-yield dividend play while…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Cash in Your Pocket: 3 TSX Dividend Stocks That Pay Out Monthly

Bolster your monthly income with these three dividends stocks that act like regular paycheques.

Read more »

A plant grows from coins.
Dividend Stocks

Beat the TSX Index With These Cash-Gushing Dividend Stocks

These cash flow-rich stocks are more likely to gush passive dividend income streams long into the future.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Here Are My Top 5 Dividend Aristocrats to Buy Right Now

Canadian National Railway (TSX:CNR) is a Dividend Aristocrat with 27 years of dividend growth.

Read more »

Woman has an idea
Dividend Stocks

The Smartest Canadian Dividend Stocks to Buy With $500 Right Now

Besides their years-long dividend-growth track record, the strong fundamentals of these Canadian dividend stocks make them really attractive to buy…

Read more »

retirees and finances
Dividend Stocks

No, the CPP Didn’t Squander $46 Billion of Taxpayer Money

The Globe and Mail claimed that the CPP Board mismanaged Canadians' money, but it beat the returns earned by the…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

Better Buy: Telus or BCE Stock

BCE (TSX:BCE) has a higher dividend yield than Telus (TSX:T). Is it a better buy?

Read more »