TFSA Titans: Stocks That Can Skyrocket Your Retirement Savings

Canadians can supercharge their TFSAs and skyrocket retirement savings with two dividend titans.

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People securing their financial futures invest in dividend stocks and then reinvest the dividends for faster compounding of capital. The same strategy works best in a Tax-Free Savings Account (TFSA) where interest, capital gains, and dividends earned in the account are tax free.

The secret to supercharging a TFSA is to purchase and hold the Bank of Nova Scotia (TSX:BNS) and BCE (TSX:BCE). Retirement savings can skyrocket in the long run if your core holdings are a pair of dividend titans. More importantly, if you don’t pocket the dividends and instead use them to accumulate more shares, your TFSA balance should grow faster.

A quarter of progress

The collapse of several financial institutions in the U.S. recently raised concerns about the stability of Canadian banks. Industry experts anticipate declining profitability due to higher provisions for credit losses. Fortunately, the entire sector maintains a conservative orientation.

BNS, in particular, remains in tip-top financial shape, despite lower net income in the second quarter (Q2) of fiscal 2023. In the three months ended April 30, 2023, profit dropped 21.5% to $2.16 billion due to a higher loan-loss provision of $709 million. Its chief risk officer Philip M. Thomas said the $79.23 billion bank is adapting to the evolving landscape and remains proactive in building allowances.

Still, BNS president and chief executive officer (CEO) Scott Thomson said the quarterly results reflect the stability of the diversified global business model. Notably, deposits outpaced loan growth quarter over quarter to strengthen the bank’s liquidity. It also paved the way for the 3% increase in the quarterly dividend.

Thomson describes Q2 fiscal 2023 as a quarter of progress, but there’s more work ahead. He said focusing on primary customer growth to drive long-term multi-product profitable relationships is one of the top priorities. Management will also purposely allocate capital to improve the business mix and support profitability.

From a dividend standpoint, Canada’s third-largest bank has a dividend track record of 191 years and has raised dividends for 12 consecutive years. At $66.13 per share (+2.81% year to date), the dividend yield is 6.41%. While the macroeconomic outlook is unfavourable, the eventual reversal of loan-loss provisions should benefit BNS and prop up earnings.

Strong fundamentals and competitive position

BCE is an excellent exposure for dividend earners and TFSA investors for its high yield and more than 100 years of dividend payments (since 1881). At $61.37 per share (+4.85% year to date), the $55.98 billion communications giant pays a mouth-watering 6.31% dividend. A $6,000 position will produce $96.15 in quarterly passive income.

The telecom giant is a cash cow, generating meaningful revenues from its wireless, wireline, internet, and television (TV) services to residential, business, and wholesale customers across Canada. Market analysts forecast earnings growth of around 8.6% annually going forward.

Management said the 15.6% decline in net earnings to $788 million in Q1 2023 versus Q1 2022 was expected because of cost pressures and inflation impacts. Its president and CEO Mirko Bibic said, “BCE’s fundamentals and competitive position remain as strong as ever. With financial results that were right on our internal plan for Q1.” He also noted the continued operating momentum across the business.

Avoid losses

Canadians can build substantial retirement savings through the TFSA, because of its tax-free feature. However, users can avoid losses (capital and contribution room) by holding dividend titans. The uninterrupted payouts should compensate for stock price declines.   

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

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