The Registered Retirement Savings Plan (RRSP) isn’t the only option for Canadians when it comes to retirement savings. Yearly contribution limits may be much lower, but the benefits of the Tax-Free Savings Account (TFSA) are certainly enough of a reason to max out the account each year.
As the name suggests, there are tax benefits to investing in a TFSA. For those with a long-term time horizon, the TFSA offers the ability to earn compound gains year after year, completely tax-free. Even when a withdrawal is eventually made, there’s no need to pay any tax at all.
For short-term savers or those already in retirement, the TFSA can serve as a passive-income generator. Passive income from dividends can be withdrawn at any point in time, completely tax-free.
Why stocks can be a great choice for a TFSA
To take advantage of the tax-free compound growth potential and passive income, you’ll need to own funds that can provide growth and income for you. If that’s what you’re after, stocks should be a serious contender.
I’ve reviewed two TSX stocks geared toward those already in retirement. Together, the two companies can provide an investment portfolio with a consistent inflow of cash through dividends, geographical diversification, and even market-beating growth potential.
If you’ve still got some contribution room available in your TFSA, these two companies should be high up on your watch list.
Toronto-Dominion Bank
Any Canadian investor that’s in search of passive income would be wise to start with the Canadian banks. The Big Five not only own some of the top yields on the TSX today but some of the long dividend-payout streaks around. If a dependable stream of passive income is what you’re after, a bank stock is what you should be looking for.
At today’s stock price, Toronto-Dominion Bank’s (TSX:TD) dividend is yielding just about 4.5%. However, the bank’s dividend alone is not necessarily a reason to have it at the top of the list amongst the Big Five. After all, TD Bank’s current dividend yield trails three other Canadian banks.
It’s the U.S. exposure that separates TD Bank from its peers for me. The bank has done a strong job expanding south of the border, and there’s still plenty of growth to be captured.
TD Bank is a perfect choice for any Canadian passive-income investor that’s looking to increase their portfolio’s international exposure.
Northland Power
Northland Power’s (TSX:NPI) dividend might not have the same dependability as any of the Canadian banks, but there are other reasons to own the renewable energy stock.
The dependability of the dividend is no match for the banks, but the yield sure is. With shares down 50% from all-time highs, the dividend yield has surged and is now close to 4.5%. As the stock gets back on track, though, we’ll begin seeing that yield drop back down.
As a Canadian leader in the renewable energy space, there’s no shortage of long-term growth potential for Northland Power. It’s that growth potential, combined with an impressive yield, that provides the energy stock with a unique offering.
Northland Power is the perfect choice for passive-income investors that are willing to sacrifice passive income for long-term, market-beating growth potential.
