Any chance to invest with your TFSA (Tax-Free Savings Account) is a good opportunity to save on tax and grow your wealth. Fortunately, Canadians get to add an additional $6,500 of cash to their TFSA in 2023. That’s an 8.3% increase from 2022.
The TFSA is a great place to own long-term stocks
If you were 18 years or older (and a Canadian resident) in 2009, your total contribution limit is $88,000. That is $88,000 that can be invested without any tax consequence. There is no tax reporting in the TFSA and all withdrawals are safe from tax (unlike the Registered Retirement Savings Plan).
Given its tax-advantaged qualities, the TFSA is the best place to own stocks in companies that consistently compound strong total returns. If you don’t mind holding stocks for several years, here are two unique infrastructure stocks to consider buying with the $6,500 contribution.
A top infrastructure stock for income
If you want a defensive stock with solid growth ahead, Brookfield Infrastructure Partners (TSX: BIP.UN) is an intriguing TFSA bet. It owns and operates crucial infrastructure assets. Think ports, pipelines, cell towers, gas processing plants, and residential utilities. Over 85% of these assets are regulated or have long-term contracts.
This helps provide generally predictable earnings. One unique attribute for Brookfield is its attractive organic growth profile. 75% of its assets have inflation-adjusted earnings. When inflation roars, so do its earnings. This is complimented by a solid capital pipeline that helps deliver strong internal growth.
Lastly, Brookfield is very skilled at acquiring beaten-up assets, fixing them up, and turning them into cash cow businesses. It just sold off several projects at very good returns. Now, it is primed for more acquisitions. The company could snap up some bargains, particularly if a recession causes quality assets to fall into financial distress.
Brookfield Infrastructure has delivered low-teens total annual returns for years. It has grown its dividend by a about 9% compounded annual rate. The stock has pulled back recently, and it trades with a nice 4.5% dividend yield. Likewise, its valuation is not demanding here, making it a decent add for your TFSA today.
A top infrastructure stock for TFSA compounding
WSP Global (TSX: WSP) is another interesting infrastructure stock to consider for a TFSA. Unlike Brookfield Infrastructure, it doesn’t pay a big dividend. It only yields 0.86%. Rather than pay a big dividend, it collects most of its cash flows and uses them to acquire engineering, project management, consulting, and design firms around the globe.
In fact, it has added over 150 firms since the company was started. In 2022, it added a few large firms (like Wood Environmental) and six smaller firms. Despite its acquisitive nature, it grew revenues organically by 7% in 2022. That is its best internal rate of growth over the past 10 years. Adjusted net earnings increased 17% for the year.
Demand continues to be very robust for its services. Its project backlog increased almost 25% in the year. WSP enters the second year of an aggressive three-year growth plan exceeding expectations for growth and profitability.
This TFSA stock is up over 600% over the past decade. That is a 22% compounded annual growth rate. While these types of returns will be hard to replicate, the company continues to perform extremely well. Given its quality, it is not a cheap stock. However, if you want to hold a great business for the long term, WSP is a good bet for a TFSA.
