Canadian savers are searching for ways to build a self-directed retirement fund that will allow them to live comfortably in their golden years.
As people live longer, the need to set extra cash aside is becoming more important. Life isn’t getting any cheaper, and fewer people have generous defined-benefit pension plans that will pay them a guaranteed amount until death.
Fortunately, there are ways people can take retirement planning into their own hands. Making contributions to RRSPs is always recommended. Another option is to take advantage of contribution room in a Tax-Free Savings Account (TFSA).
The TFSA protects all earnings from the tax authorities, and the funds are easy to access in the event you need to tap some cash for an emergency.
A number of investments can be held inside the TFSA, including GICs, bonds, and stocks. With fixed-income yields at such low levels, more people are turning to dividend stocks to get better returns.
Let’s take a look at two stocks that have generated attractive long-term growth and should continue to be solid picks for a TFSA pension fund.
TC Energy (TSX:TRP)(NYSE:TRP), formerly TransCanada, is a giant in the North American energy infrastructure sector. The company owns gas and liquids pipelines, gas storage, and power generation assets in Canada, the United States, and Mexico.
TC Energy spent US$13 billion in 2016 to acquire Columbia Pipeline group in a move that added important assets in the Marcellus and Utica shale plays and came with important infrastructure running to the Gulf Coast.
The deal also put TC Energy in a strong position to capitalize on the long-term LNG opportunities in the United States.
TC Energy currently has a $30 billion development program that is expected to support dividend growth of 8-10% per year through 2021 and increases of 5-7% beyond that time frame.
The current payout provides a yield of 4.4%.
A $10,000 investment in TC Energy 20 years ago would be worth $96,000 today with the dividends reinvested.
The company grows through a combination of takeovers and internal development projects. In recent years, big acquisitions in the United States provided more balance to the geographic and segment exposure.
The US$11.3 billion purchase of Michigan-based ITC Holdings, a transmission company, and the US$4.5 billion buyout of Arizona-based UNS Energy, a natural gas distribution and power company, worked out well. Now, Fortis is focused on its $18.3 billion capital program that should boost the rate base enough over the next five years to support annual dividend hikes of 6%.
The board has raised the payout every year for more than four decades, so the guidance should be reliable.
The stock provides a 3.6% yield today.
A $10,000 investment in Fortis 20 years ago would be worth $136,000 today with the dividends reinvested.
The bottom line
TC Energy and Fortis pay reliable dividends that should continue to grow at a steady pace. If you have some cash sitting on the sidelines, these two stocks deserve to be on your TFSA radar.
A $20,000 investment equally split between the stocks two decades ago would be worth $232,000 today with the dividends reinvested.
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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 Andrew Walker has no position in any stock mentioned.