A Top Dividend Stock to Stash in Your TFSA Forever

SmartCentres REIT (TSX:SRU.UN) is a terrific dividend payer that TFSA investors should consider buying as we head into June 2021.

| More on:

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

When it comes to your Tax-Free Savings Account (TFSA), you should look to invest for the long term rather than trying to speculate on hot assets to make a quick buck.

While you could make a considerable amount of tax-free gains through trading, one must remember that any quick losses that are locked-in will not be able to offset capital losses in any of your non-registered accounts. Even if you’re successful on a number of your trades, the Canada Revenue Agency (CRA) could come knocking and you may need to pay tax at their discretion. If business trading activities are conducted in your TFSA, you may end up having to owe tax on your gains.

Rather than trying to grow your TFSA at the quickest rate possible, increasing your risk of losses or attention from the CRA, I’d much rather use the account to hold the best investment ideas for years, if not decades, at a time.

Without further ado, let’s have a brief look at one cheap TSX dividend payer worthy of stashing in your TFSA today:

TFSA investors: A juicy 6% yield for your TFSA

SmartCentres REIT (TSX:SRU.UN) is a retail REIT that gets a pretty bad rap. It’s a play on strip malls, which have been negatively impacted by COVID-19 restrictions. Despite being a play on shopping centres, Smart and its juicy 6%-yielding distribution aren’t nearly as vulnerable as most would think.

First, the REIT houses numerous essential retailers that have and will continue to have their doors open during even the worst COVID lockdowns. A majority of its locations are anchored by Walmart stores, which have helped draw foot traffic at SmartCentres locations. These anchors were likely why Smart kept its rich distribution intact, as most other REITs slashed their distributions right down the middle.

Why does Smart’s pandemic resilience even matter now that the accelerating vaccine rollout puts the pandemic’s end is in sight?

It’s great to be optimistic, but it’s important to remember that the race between vaccines and variants is not yet over. There could be a major fourth wave in Canada in autumn, and the reopening plays could stand to take a step back after marching closer toward the light at the end of the tunnel. For income investors, distribution security is essential. And unless Walmart and numerous other retailers are pressured to shut their downs during any future waves, I don’t see Smart reducing its payout.

Second, Smart’s long-term growth trajectory could pave the way for a nice re-valuation to the upside. You wouldn’t know it from SmartCentres’ name, but the REIT is making an aggressive move into residential to become more of a diversified mixed-use property play. Although the company’s efforts will take some time, I do think the REIT’s quality of cash flows will be on the uptrend.

Finally, SmartCentres REIT is still cheap, with shares down 10% and 24% from their 2020 highs and 2016 all-time highs, respectively. There’s too much negativity when it comes to retail REITs, even the best-in-breed ones. As the economy reopens and traffic returns to the malls, the negativity will fade, and Smart will be able to move towards its highs as rent collection rates fully normalize.

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 Joey Frenette owns shares of Smart REIT. The Motley Fool recommends Smart REIT.

More on Stocks for Beginners

calculate and analyze stock
Stocks for Beginners

Top TSX Stocks for Beginners in July 2022

Buying these top TSX stocks in July 2022 could help stock market beginners receive handsome returns on their investments in…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Should You Buy Canadian Bank Stocks After the Recent Correction?

Dividends and fairly valued Canadian bank stocks look attractive. But the macro picture could be a spoiler!

Read more »

consider the options
Stocks for Beginners

TSX Investors: These International Stocks Look Insanely Cheap

Diversification can help grow and protect your TSX stock investment portfolio. Here are two international stocks that are selling at…

Read more »

Young adult woman walking up the stairs with sun sport background
Stocks for Beginners

New Investor? Start a Portfolio With These 3 Stocks

Are you a new investor looking for a start in the stock market? Here are three stocks you should buy…

Read more »

financial freedom sign
Stocks for Beginners

5 Investing Hacks to Build a Million-Dollar Portfolio  

Its not difficult to build a million-dollar portfolio. Here are five simple investing hacks that take less than 10 minutes…

Read more »

Volatile market, stock volatility
Stocks for Beginners

3 Top TSX Stocks to Buy in Volatile Markets

Sitting on cash? Consider these three TSX stocks for the long term.

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

1 Canadian Growth Stock That Could Double Your Money in an Economic Recovery

The market downturn is an opportunity to lock growth during the economic recovery. This stock is a blend of value,…

Read more »

edit Safe pig, protect money
Stocks for Beginners

2 Safe TSX Stocks for Beginners to Buy in a Market Correction

These two TSX stocks are still solid long-term buys today, despite the recent market correction.

Read more »