Start a TFSA “Pension” With These 3 Stocks

A TFSA pension can help Canadian retirees augment their government pensions without overloading the tax bill.

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Retirement plan

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Government pensions are an important element of retirement planning for most Canadians. However, even though the pensions are quite comprehensive, and retirees have some control when it comes to beefing up those pensions (by deferring payment to an age higher than 65), they may not be enough to sustain most retirees financially.

That’s where the savings and investments come into play. One way to use retirement savings/investments to augment government pensions is to generate an income stream, ideally from the Tax-Free Savings Account (TFSA).

This way, retirees can get more income without increasing their tax bill. You don’t have to wait until retirement to build up this stream. Ideally, the sooner you start, the more chances you may have to increase the size of this TFSA-based pension substantially. Many stocks can help you with that goal.

A utility stock

Canadian Utilities (TSX:CU) is one of the safest dividend stocks you can buy in Canada for a couple of reasons. The first is its business model. As a utility company, its revenues (that fund the dividends) are safe, consistent, and resilient against weak economic conditions. The second reason is the Canadian Utilities dividend history.

It’s the oldest Dividend Aristocrat in Canada and has been elevated to a Dividend King because it has grown its payouts for five consecutive decades. The dividends are also quite financially sustainable, considering its healthy payout ratio. The company is currently offering a generous 5.4% yield.

An insurance company

If you want to choose from large-cap stocks, Great-West Lifeco (TSX:GWO) is a good pick. It is a financial services company based in Canada, though it operates in multiple countries. Insurance is its primary business, though it has diversified into other financial segments as well.

Multiple financial companies operate under the Great-West Lifeco banner, and collectively, it has $2.5 trillion in assets under management.

Its magnitude and impressive international presence contribute to its safety as an investment. It has also joined the ranks of Dividend Aristocrats and offers a juicy 5.2% yield. The payout ratio has been stable for almost a decade. The company may also offer modest capital-appreciation potential, but dividends remain the primary reason to invest.

A mortgage company

Timbercreek Financial (TSX:TF) is a small-cap company that offers structured financial solutions to commercial real estate sector companies in Canada. Unlike mortgage giants (banks), companies like Timbercreek Financial are more nimble and able to customize their loans and mortgages to the specific needs of their customers. This flexibility appeals to a wide range of businesses.

Its current portfolio is quite modest; it has three properties: two multi-family and one mixed-use. Despite the commercial nature of the properties, the portfolio is quite residential-leaning. This increases the long-term financial viability of the company’s revenues that it uses to fund its dividends, currently available at a generous 9% yield.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Timbercreek Financial made the list!

Foolish takeaway

The three companies represent three different types of dividend stocks, each with its own strengths. Canadian Utilities has a strong dividend pedigree and belongs to a safe sector. Great West is a blue-chip insurance giant. In contrast, Timbercreek is a high-yield, small-cap company that can significantly increase the size of your dividend-based TFSA pension.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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