2 Canadian Stocks That Could Turn Your TFSA Into $1,000,000

The TFSA in Canada is a millionaire-maker, especially for younger savers. If you want to turn your TFSA into $1 million, make the Bank of Nova Scotia stock and Enbridge stock your core holdings for generous dividends.

| More on:
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT

Image source: Getty Images

A $1 million goal isn’t impossible for Canadians if they adopt a focused savings and investment strategy. Their golden opportunity has been available since 2009. You can become a millionaire someday through the Tax-Free Savings Account (TFSA).

The TFSA is perhaps the only investment account where taxes are of no concern to account holders. Users can save and invest to experience tax-free money growth. You won’t pay tax on Canadian dividends, capital gains or interest earned in your TFSA. Even if you withdraw funds, not a penny is taxable.

However, the journey to a million-dollar takes time. It may take 20, 30, or more than 50 years, depending on the start date. Young people or parents’ children generation should start as early as possible to catch the financial break. All Canadians who were 18 or older in 2009 can contribute and max out the yearly TFSA limits.

Most TFSA users invest in well-known Canadian blue-chip stocks. Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) or Scotiabank and Enbridge (TSX:ENB)(NYSE:ENB) are the common choices because both are generous dividend-payers.

Desirable core holding

Scotiabank’s dividend track record alone makes it a desirable core holding in a TFSA portfolio. This $94.64 billion bank has been paying dividends since 1832. The payouts of Canada’s third-largest bank could continue for another century or more. Thus, your chances of hitting a $1 million TFSA balance are high in a long investment horizon.

Over the last 20 years, Scotiabank’s total return is 701.8% (10.96% CAGR). Its 14.93% year-to-date gain indicates the bank has endured COVID-19’s impact. If you were to invest today, the current dividend yield is 4.65%, while the payout ratio is less than 70%.

Let’s assume that the annual TFSA limit and dividend yield are constant for the next 30 years. If you maximize or make the most of your contributions every year, your future balance could be a little over $700,000, including dividend reinvestments. Remember, there’s no age contribution limit. You can contribute as long as you live.

Lavish income provider

Enbridge is a more generous income provider, although the energy sector is more volatile than the banking sector. However, this $92 billion energy infrastructure company’s business model shields it from industry headwinds and economic downturns.

The main charm of Enbridge to TFSA users is its mouth-watering 7.45% dividend. Any amount you invest will double in 9.66 years. If you apply the same assumptions as in Scotiabank and implement a similar strategy, it would take 25 years to reach the $1 million target.

Over the last two decades, the top-tier energy stock returned 848.16% (11.89% CAGR). Furthermore, Enbridge’s dividend growth streak is a remarkable 26 years. There were dividend increases for 26 consecutive years. The company can sustain dividend payments as the business is enduring.

Enbridge moves 25% of North America’s oil and natural gas. Expect more cash flows in the coming years as management proceeds with secured growth projects worth $16 billion. Because pipelines are capital-intensive, competition is hardly a concern. The existing infrastructure or network is more valuable today.

Real benefit

The real benefit of the TFSA to account holders, especially younger savers, is the power of compounding. The tax-free growth of your TFSA contributions is exponential. If your window is 25 years or more, the returns would be substantial, and the balance could be a cool million.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »