Money grows faster in a Tax-Free Savings Account (TFSA) because there are no taxes on whatever interest or investment income you earn. There are several eligible investments to choose from, although many users prefer to hold high-yield stocks to enjoy a substantial windfall in the future.
Large-cap stocks are logical choices but not necessarily the best strategy if you’re chasing a $1 million dream. Some TFSA investors purchase small-cap stocks because, historically, they have outperformed large-cap stocks. However, you must understand that they are more volatile and riskier.
Fortunately, these three small-cap stocks have well-established businesses with strong dividend track records. More importantly, the average dividend yield is 8.43%. Assuming your available TFSA contribution room is the maximum (cumulative since 2009), or $88,000, your capital will compound to $522,150.20 in 22 years if allocated in the three stocks.
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Top senior housing company
Sienna Senior Living (TSX:SIA) owns and operates long-term care (LTC) communities and retirement residences (a total of 80 combined) while managing 13 residences for third parties. The $802.3 million senior housing company has been around for over five decades and is one of the TSX’s generous dividend-payers today.
At $11 per share (+2.99% year to date), the dividend yield is 8.52%. According to management, expanding the retirement portfolio in 2022 was a significant step toward further diversification. It should position Sienna to take advantage of the favourable long-term fundamentals in Canadian seniors’ living.
As of year-end 2022, the occupancy rates in retirement residences and LTCs were 88.6% and 96.3%, respectively. The goal in 2023 is to capture the growth potential inherent in Sienna’s retirement portfolio and maintain a strong balance sheet.
Conservative and healthy mortgage portfolio
Timbercreek Financial (TSX:TF) continues to beat the broader market in 2023 despite industry headwinds. At $8.12 per share, current investors are up 16.7% year to date and partake in the 8.58% dividend. The $680.3 million non-bank, commercial real estate lender provides short-term, structured financing solutions.
The lending program is conservative as it focuses only on income-producing commercial properties. As of December 31, 2022, first mortgages comprise 92.4% of the mortgage investment portfolio, while 87.4% are investments in cash-flowing properties. For the full-year 2022, net income rose 35.4% year over year to $55.9 million.
Timbercreek’s CEO, Blair Tamblyn, said, “As rates stabilize, commercial transaction activity will increase, and we have the team and balance sheet ready to capitalize.”
Strong franchise sales
The Boston Pizza (TSX:BPF.UN) brand has been around for nearly 60 years, and some market analysts describe the $325.2 million royalties income fund as a bond proxy. If you invest today, the share price is $15.77 (+5.95% year to date), while the dividend offer is 8.19% (monthly payout).
Last year’s highlight was the 29.5% increase in Franchise Sales to $855 million versus 2021. Notably, cash flows from operating activities rose 12.7% year over year to $34.4 million. Boston Pizza increased its monthly distribution rate two times last year (July and November).
Winning strategy
The winning TFSA strategy is always to max out your annual contribution limits if finances allow. You may not reach $1 million, but your balance could be close to it in a longer investment timeframe.
