New TFSA Investors: 2 Top TSX Stocks to Create a Self-Directed Retirement Fund

If you’re looking for solid stocks to build a retirement fund in your TFSA, look into these two dividend stocks.

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Eligible Canadians have a new $6,500 of tax-free investing room in their Tax-Free Savings Accounts (TFSAs) this year. New investors may have additional TFSA room if they were eligible but haven’t made full contributions to their TFSAs in prior years. If you made TFSA withdrawals in previous years and haven’t contributed back, those withdrawal amounts also count as extra TFSA room. By maximizing your TFSA, you can create a self-directed retirement fund.

Consumer staples stock on sale

We have few consumer staples stocks available on the TSX. The sector makes up about 3% of the iShares S&P/TSX 60 Index ETF that is representative of the Canadian stock market.

From 2018 to 2022, consumer staples company Jamieson Wellness (TSX:JWEL) increased its adjusted earnings per share (EPS) by about 16.2% annually. The high growth is why its normal price-to-earnings ratio (P/E) in the period was about 28.

The recent pullback in the growth stock could be a buying opportunity. Jamieson stock has dipped about 12% from its recent high of $37. The latest weakness came after it reported its fourth-quarter and full-year 2022 financial results.

Its full-year results were solid. Revenue rose 21.4% to $547.4 million, while Jamieson Brands revenue climbed 27.9% with organic growth of 8.1%. Adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, a cash flow proxy, also increased at a nice clip of 23.6% to $123.8 million. Ultimately, its adjusted EPS increased by 17.4% to $1.55. Its payout ratio was about 50% of earnings. Additionally, its free cash flow was also able to cover its dividend with money left over.

The company provided initial outlook for 2023:

  • Revenue growth of 22-28% to $670-$700 million
  • Adjusted EBITDA growth of 13-18% to $140-$146 million
  • Adjusted EPS of $1.62-$1.72, which represents an increase of 4.5%-11%

The investing community is probably selling off the stock because of the anticipated slower EPS growth in 2023. At $32.67 per share at writing, the stock trades at a forward P/E of about 19.4. Analysts believe the stock is discounted by about 24%. As well, it yields almost 2.1%.

A dividend stock to help build your retirement fund

Brookfield Infrastructure Partners (TSX:BIP.UN) is another excellent pick for TFSA investing. The utility stock is down approximately 17% from its high in August. The pullback helped push its cash-distribution yield to 4.6%, which is attractive for its long-term growth potential. For reference, its 10-year returns are about 16.8% per year. In other words, it turned an initial investment of $10,000 into $55,941 in this period.

The company is devoted to building a portfolio of quality, long-life infrastructure assets, which are essential to the markets they serve. Natural gas infrastructure, electricity distribution and transmission lines, smart metres, rail operations, toll roads, telecom towers, and data centres are all a part of its portfolio. Other than being diversified across industries, its assets are also globally diversified.

Furthermore, BIP has increased its cash distribution diligently. Specifically, it is a Canadian Dividend Aristocrat with 15 consecutive years of dividend hikes. It hiked its cash distribution by 6.25% this month, which aligns with its five-year dividend-growth rate of 6.6%.

Bottom line

Both stocks are good considerations for Canadian investors’ retirement fund. Between the two, BIP is likely lower risk because of the periodic returns from its higher cash distribution and the durability of its cash flows.

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 Kay Ng has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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