Canadians don’t like inflation to remain persistently high because businesses will pass cost increases to consumers. While inflation is trending downward, the 6.3% rate for December 2022 is still significantly above the central bank’s target range (2% to 3%). And don’t expect the rate to fall drastically soon.
If you plan to maximize your Tax-Free Savings Account (TFSA) room, consider investing in Laurentian Bank of Canada (TSX:LB) and Boston Pizza Royalties Income Fund (TSX:BPF.UN). Besides the attractive dividend yields, the respective businesses are doing well amid the challenging environment. Your tax-free earnings can help you cope with inflation.
Alternative to the Big Six
Laurentian Bank is very small compared to the Big Six in Canada, although it’s a reliable passive income provider. This $1.5 billion bank is turning the corner, as evidenced by the full-year fiscal 2022 results. The share price is $35.58 (+10.15% year-to-date), and the dividend yield is 5.06% if you invest today.
President and CEO, Rania Llewellyn, said 2022 was a year of execution. In the 12 months that ended October 31, 2022, net income increased 297% year over year to $226.6 million. For Q4 2022, net income reached $55.7 million compared to the $102.9 million net loss in Q4 2021.
Llewellyn adds, “I am extremely pleased that we exceeded all of our financial targets in this first year of our three-year strategic plan.” The Commercial Banking segment focuses on specialized sectors and is LB’s growth engine. It posted several milestones in 2022, including the record loan growth in Inventory Financing to over $2 billion. ∙
Management said LB is an alternative to the Big Six banks to meet the needs of even more Canadians and businesses.
The game plan is to leverage its size to create a competitive advantage in specialized markets and remain agile in assessing new opportunities. Because of the strong earnings in fiscal 2022, the Board approved a 2% hike in the quarterly dividend. Market analysts’ 12-month average price target is $40.54 (+13.9%).
Stable investment prospect
The pizza business is among the stable investment options for TFSA investors, and notable among them is Boston Pizza. At $16.32 per share, the royalty stock is up 8.9% year to date, and shareholders enjoy a juicy 7.5% dividend. Since the payout is monthly, you can reinvest the dividends 12 times a year to grow your TFSA balance faster.
This $351.2 million company, through Boston Pizza Royalties Limited Partnership, owns the trademarks of Boston Pizza International (BPI). It also operates and franchises Boston Pizza restaurants. According to BPI President Jordan Holm, total franchise sales for 2022 returned to pre-pandemic levels despite the COVID-induced challenges.
Total franchise sales increased 29.5% to $855 million versus 2021. Because of the strong cash flows, the fund increased its monthly distribution rate twice last year. For 2023, management will support the franchises and expect the positive sales momentum to continue, notwithstanding the economic uncertainty and inflationary pressures.
Higher contribution limit
TFSA investors got a bit of consolation from rising inflation. The federal government didn’t keep the annual limit stagnant this year. For 2023, the new contribution limit is $6,500 instead of the $6,000 in the last four years.