Total TFSA Limit Will Be $75,500 In 2021: Use it to Buy 2 Dividend Stocks

The new TFSA contribution limit has been announced. People would be able to contribute up to $6,000 to their TFSA accounts in 2021, apart from any contribution limit they have left.

| More on:
Various Canadian dollars in gray pants pocket

Image source: Getty Images

One of the main differences between the Tax-Free Savings Account (TFSA) and the older tax-deferred retirement savings account RRSP is contribution room. RRSP allows for a more generous contribution room that varies with your income level, whereas the TFSA contribution room is a flat dollar amount. The amount is indexed to inflation and corrected to the nearest $500.

For 2021, the contribution limit is the same as it has been for the past two years: $6,000, bringing the total up to $75,500. So someone who turned 18 in 2009 or before that and hasn’t contributed to the TFSA yet can contribute up to $75,500 to their TFSA. Even if the yearly contribution limit seems limited, the accumulated sum is quite substantial, and in the right stocks, it can be powerful.

Growth stocks are a good option for meeting your short-term investment goals, but if you want to create an abundance of cash in your TFSA, you might want to consider some dividend stocks.

A high-yield REIT

Inovalis REIT (TSX:INO.UN) started distributed dividends in the latter half of 2016. It’s a Toronto-based REIT with a market capitalization of over $250 million. The company has a Europe-based portfolio of office properties. Most of its real estate assets are concentrated in France and Germany. The relative economic stability allowed the company to grow and release dividends at a safe payout ratio steadily.

Even now, when most companies are struggling with a dangerously high payout ratio, the company is offering a mouth-watering 9.4% yield at a 41.85% payout ratio. The third-quarter results have been encouraging. Net rental income increased compared to the third quarter last year, but the operating income decreased, partly because of the fair value re-evaluation of assets.

It’s a safe dividend stock with a very generous yield. If you put a significant TFSA sum into this account, that is, $30,000, at the current yield, the stock can get you about $235 in monthly, tax-free, dividend-based income.

A mortgage investment corporation

Financial institutions, especially mortgage lenders that are closely associated with the real estate market, saw their shares weaken quite a bit. But now that that the real estate sector is recovering, so, too, are financial sector companies like Atrium Mortgage Investment (TSX:AI). But it’s still far from reaching its pre-crash valuation, which is good news for dividend investors since it means locking in a juicy 7.4% yield.

Also, $30,000 invested in Atrium can get you a monthly dividend-based income of $185. The company doesn’t regularly increase its dividends, but it has increased them five times in the past eight years. The payout ratio is dangerously close to 100%, but the company has sustained its dividends through similar payout ratios for the past five years, so it’s unlikely to slash them in the near future.

Foolish takeaway

Even without straining your TFSA to its limits, you can create a monthly tax-free dividend income of $420. You can either invest it in other stocks or direct it to a cash-only emergency fund. Both Atrium and Inovalis are have shown very slow stock price growth in the past five years (before the crash), but the price has grown rather than fluctuating downward.

So even if you might not benefit from capital appreciation, chances are that your TFSA-based portfolio won’t lose too much value because of these two stocks.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Inovalis REIT.

More on Dividend Stocks

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »

Increasing yield
Dividend Stocks

2 High-Yield (But Slightly Risky) Stocks to Keep Your Eye on

Have these top TSX dividend stocks finally bottomed?

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks I’d Buy if They Fall a Bit

Any near-term decline in these two top Canadian dividend stocks will make them look even more attractive.

Read more »