If there is one place in the investing universe that cash does not belong, it’s in your TFSA!
A TFSA offers possibly the greatest benefit of any other investment vehicle in Canada: tax-free growth. When you take money out of your TFSA, you pay zero in taxes. That’s why holding cash in your TFSA is a bad idea: cash provides no growth and actually loses value due to inflation.
Yet, a recent study from Statistics Canada revealed that 42% of TFSA participants primarily hold cash. The reason almost half of Canadians hold cash in their TFSA may not be because of poor choices but rather fear of losing money. We’ve been hearing for almost a decade that a recession is imminent. Unfortunately, those who have not been invested in equities during the past 10 years have missed out on one of the most prosperous times in stock market history.
If you are holding cash in your TFSA due to fear, there is a better option: equities that offer hefty dividend payouts and dependable long-term growth. With these stocks, investors can enjoy steady tax-free income over a long period and take advantage of potentially massive tax-free capital gains.
Great dividend from a steady growth stock
TC Energy (TSX:TRP)(NYSE:TRP) is a great long-term choice for a TFSA. What makes TC Energy attractive is its steady growth and its sizable dividend. Since 2000, the stock price has risen 448%. Trading at $67.40 as of this writing, the stock has gained more than 25% over the past year.
The company also has a long track record of dividend increases. For the past two decades, dividends have grown every year at a compound annual growth rate of 6.83%. The current yield is 4.42%, and the company is forecasting its dividend will increase at a rate of 8-10% through 2021 and 5-7% thereafter.
As one of North America’s leading energy infrastructure companies, TC Energy produces more than 25% of the natural gas consumed daily in North America. With a market cap of $63 billion, over 95% of TC Energy’s revenue comes from regulated or long-term contracts.
Due to these long-term contracts and assets, the company recently announced it expects comparable EBITDA to exceed $10 billion by 2022. This forecast represents an increase of more than 16% from what the company reported for 2018.
TC Energy is also investing in projects to grow its revenue. One example is the $6.2 billion Coastal GasLink Pipeline Project. Expected to be in service by 2023, the pipeline will provide direct access to the world market for Western Canadian Sedimentary Basin production. The 670-kilometre natural gas pipeline will span from the Dawson Creek area to the west coast of B.C.
The bottom line
TC Energy pays a substantial dividend and maintains a track record of robust dividend increases. The company also offers high levels of potential capital growth. While its current assets ensure sustained revenue, the company’s infrastructure projects should grow revenue for years to come. TC Energy will allow you to enjoy a tax-free income stream and achieve significant long-term results, making it a perfect choice for your TFSA.
