A TFSA stuffed with dividend stocks can be an incredibly powerful income generation tool, especially after a few decades of compounding.
As I’ve outlined before, it’s not really that hard to become a TFSA millionaire. If an investor maxes out their contribution room and gets a half-decent rate of return, their millionaire status is inevitable.
Think about how nice it would be to have a cool million spinning off gobs of lucrative tax-free income. At just a 4% yield, you’d be looking at $40,000 annually. That’s the equivalent of making $55,000 or $60,000 from traditional employment income, depending on your province.
Now think about how attractive a dividend yield of 6%, 8%, or even 10% would be. That would be a heck of an income stream, even a few decades from now.
Here are three stocks with generous dividends you can stuff in your TFSA today. Begin building your passive-income empire now.
Gamehost (TSX:GH) is a small-cap casino operator with properties in Grande Prairie, Fort McMurray, and Calgary in Alberta.
Shares are priced at an attractive valuation because of concerns about the overall Alberta economy, trading at just 14 times forward earnings. Casino results have been somewhat weaker with revenue taking a small hit and earnings falling some 25% since peaking in 2014. The Fort McMurray wildfires didn’t help results either.
There’s still a lot to like here. The casino business is a good one; Gamehost regularly generates close to 40% operating margins. Management recently announced a hotel acquisition that should increase the bottom line. And the company can still afford its generous dividend. The payout is 7.1%.
Alaris Royalty (TSX:AD) is a finance company that takes a special ownership stake in a company — usually in the form of preferred shares — in exchange for a generous dividend stream. Often, the dividend is tied to increasing sales or earnings, which gives Alaris some upside potential if the company does well.
In 2017 and 2018, Alaris ran into a few problems when some of its royalty partners had financial difficulties, which led to lower payments. And some of the more successful partners also exercised exit clauses, which resulted in a nice one-time bump but sacrificed longer-term earnings.
The good news is the company has put some capital back to work over the last few months, including a US$46 million investment in advertising company GWM Holdings and a similar investment in Body Contour Centers, a plastic surgery company with some 50 locations across the United States. Both these investments boosted income by approximately 10% each, with Alaris’s management sharing the wealth with shareholders by increasing the dividend.
Alaris’s new annual payout is $1.65 per share, which gives shares a generous 8.5% yield.
American Hotel Properties
I’m the first to admit American Hotel Properties REIT (TSX:HOT.UN) has a somewhat risky dividend. The current yield is 11.6%. Anything above 10% is usually viewed as at risk of being cut.
American Hotel Properties has completely transformed its business over the last five years. The company used to only own bargain-priced hotels that catered to rail workers, which came with the benefit of renting rooms twice a day to both day and night shift employees. After more than a dozen acquisitions, most revenue today comes from nicer hotels located in larger cities.
At this point, the company can afford the dividend, with payments over the last year barely below adjusted funds from operations. The company was also doing renovations on a couple of its marquee properties, which caused a temporary drop in profits. Bulls hope earnings will rebound to the point where the company offers a 90% payout ratio.
Another reason to be bullish on American Hotel Properties is the insider buying from new CEO John O’Neill. O’Neill purchased some 57,000 shares in December alone and has elected to take his salary in the form of stock. That alone is a pretty bullish signal.