Stocks That Could Catapult Your TFSA Savings to the Next Level

Canadians can boost their savings and have inflation-fighting power by maximizing their TFSAs.

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Canada’s inflation dropped to 3.4% in May 2023, the lowest since June 2021. However, the decline isn’t good news because food inflation rose 9% from the previous month. Fortunately, people can avoid the erosion of their purchasing power and stay ahead of inflation.

The Tax-Free Savings Account (TFSA) is inflation-indexed. When inflation rises significantly, TFSA annual contribution limits increase. Hence, the 2023 dollar limit rose to $6,500 from $6,000 due to spiking inflation.

TFSA users can catapult their savings to the next level. The tax-advantaged account has inflation-fighting power through the power of compounding. Since money growth is tax-free, your balance can grow faster by holding income-producing assets like dividend stocks and reinvesting the dividends.

Canada Western Bank (TSX:CWB) and Exco Technologies Limited (TSX:XTC) are ideal in a TFSA. Besides the attractive yields, both are dividend aristocrats.

Strong and stable

CWB has raised dividends for 31 consecutive years, the longest streak among Canadian banks. At $24.35 per share (+3.81% year to date), the dividend yield is 5.44%. The quarterly dividends should be safe and sustainable, given the low 38.1% payout ratio.

The $2.3 billion bank and larger industry peers are under pressure to increase provisions for credit losses (PCLs) and sacrifice earnings. In Q2 fiscal 2023, CWB’s profit fell 5.7% to $70 million versus Q2 fiscal 2022. While PCL rose 21 basis points, it remains below the bank’s five-year historical average.

Despite lower profit, the Board of Directors approved and declared a 3.13% dividend hike. Its President and CEO, Chris Fowler, said, “The strength and stability of our organization enabled us to navigate the significant volatility in the global banking industry this quarter.”

Fowler adds, “We drove solid loan growth across our national footprint, with especially strong growth in Ontario and general commercial loans, and delivered another quarter of low credit losses.” CWB is well positioned to capitalize on opportunities to accelerate new client growth, although it expects lower annual loan growth in fiscal 2023.

Some say CWB has a higher risk of failure like Silicon Valley Bank in America. However, making such speculation is foolish because the Canadian bank has been profitable for years. Also, its dividend growth streak is proof of financial stability.    

Winning growth initiatives

Exco’s business is thriving this year amid challenging global macro conditions. The $306.2 million company operates in the die-cast, extrusion, and automotive industries. Its core business segments are Casting & Extrusion and Automotive Solutions. At $7.87 per share (+5.06% year to date), the dividend offer is 5.25%. The dividend growth streak is 17 years.

In the first half of 2023, sales and net income climbed 33.7% and 38% year over year to $294.6 million and $10.8 million. Exco’s President and CEO, Darren Kirk, said management’s various strategic growth initiatives support strong sales.  He adds that the increased adoption of electric vehicles and lightweighting or economizing of motor vehicles help boost the business.

Management said its significant investments to capture growth opportunities would suppress near-term profitability. However, Exco should reap the rewards once it achieves increased scale over a multi-year horizon.

Perfect for the TFSA

Dividend aristocrats like CWB and Exco are perfect holdings in a TFSA, especially the bank stock for its impressive dividend growth streak.

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 has positions in and recommends Exco Technologies. The Motley Fool recommends Canadian Western Bank. The Motley Fool has a disclosure policy.

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