The Tax-Free Savings Account (TFSA) is a unique, if not brilliant, tax-advantaged account every Canadian must have. Besides being a powerful wealth-building tool, all interest, gains, and investment income, not to mention withdrawals, are tax exempt.
TFSA users who aggressively invest or max out their limit each year could see their balance accumulate $1 million or more in the future. However, limit your investments to established dividend payers if dividend investing is your strategy.
With a $33,000 investment each in blue-chip stocks Bank of Scotia (TSX:BNS), Enbridge (TSX:ENB), and BCE (TSX:BCE), you have a real shot at hitting $250,000 in 15 years.
Strong dividend play bank
Any Big Five banks in Canada are ideal anchors in a TFSA. BNS pays the highest dividend (6.26%) in the elite group, and its dividend track record stands at 191 years. It confirms that this $80.42 billion bank and Canada’s third-largest financial institution is a strong dividend play.
A compound annual growth rate (CAGR) of 15.89% in 50.35 years (+167,348.13% return) is decent for a large, well-capitalized company. In the three months that ended January 31, 2023, net income declined 55% to $1.8 billion versus the first quarter (Q1) of fiscal 2022. But despite the profit slip in Q1 fiscal 2023, BNS increased its dividend by 2.38%.
Industry analysts expect bank earnings to decrease this year, although they see a single-digit return to growth for BNS in 2024. Its chief executive officer (CEO) Scott Thomson said the bank would focus on profitable, sustainable growth areas and refine the international banking segment. He added the resilient Canadian consumers and growth in Latin America markets will help BNS improve shareholder returns.
Formidable as ever
Enbridge is formidable as ever and a defensive exposure to the energy sector, because its massive pipeline network is essential to the industry. Moreover, the dividends are healthy and safe, since 90% of revenues or cash flows are contracted. At $53.37 per share (+2.52% year to date), the yield is a mouthwatering 6.73%.
In 47.3 years, ENB’s total return is 55,864.65% which translates to a compound annual growth rate (CAGR) of 14.31%. The $108 billion midstream oil company owns and operates the world’s longest crude oil transportation pipeline. Its CEO Greg Ebel said Enbridge connects to North America’s most prolific oil and gas basins. He added that it is a competitive advantage that no company can replicate.
High-quality, essential business
Like with BNS and Enbridge, dividend payments from BCE are safe, with potential increases over time. The $57.58 billion company and Canada’s most dominant telecommunications firm started paying dividends in 1881 and continue to do so. Furthermore, broadband communications services are essential to residential, business, and government customers.
According to management, BCE’s 5G network covers 82% of Canadians. Because of a healthy projected free cash flow growth and declining capital expenditures, BCE will focus on profitable subscriber growth in 2023. The telco stock trades at $63.13 per share (+7.86% year to date) and pays a lucrative 6.15% dividend today.
The systematic approach to building wealth via the TFSA is to contribute yearly. Also, by limiting your holdings to Canadian blue-chip stocks, you can forget about the market noise and collect quarterly dividends without fail.