Some Canadians treat the Tax-Free Savings Account (TFSA) as a regular or standard savings account despite its numerous tax-free benefits. The TFSA is one of the best investment vehicles if you’re saving for the future or building a nest egg. You also have a source of lifelong tax-free income as there’s no age limit for contributing.
The Canada Revenue Agency (CRA) sets inflation-adjusted contribution limits yearly, and no TFSA user can over-contribute. If the play is to turn a $10,000 investment into a retirement goldmine, you can do it in two years but not in one lump sum investment. You could maximize the $6,500 contribution limit for 2023 and then wait for January 2024 to add another $3,500.
The suggested holdings in a TFSA for retirement income are utility stocks. Both Canadian Utilities (TSX:CU) and Fortis (TSX:FTS) are for keeps because of their impressive dividend growth streaks. The former is TSX’s first dividend king, while the latter is one year shy of earning the same status (49 years of consecutive dividend increases).
You can buy either utility stock, hold it in your TFSA, and never sell it again. Given the current dividend yields, let’s compare the annual tax-free earnings from a $10,000 position in Canadian Utilities (5.56%) or Fortis (4.23%).
| Company | Price | No. of Shares | Dividend per Share | Total Annual Payout |
| CU | $32.28 | 187.266 | $2.26 | $423.00 |
| Fortis | $53.40 | 309.790 | $1.79 | $556.00 |
Longest track record
The scope and scale of Canadian Utilities’ operations are global. This $8.7 billion company serves residential and commercial customers in Alberta and communities in Canada’s North region. It provides Mexico with hydroelectricity, operates Puerto Rico’s electricity system, and has natural gas-fired power plants in Australia.
Management banks on CU’s global utility portfolio and energy infrastructure assets to drive long-term growth and deliver superior returns to shareholders. The longest track record of annual dividend increases in Canada is proof of business resiliency. Besides building on its core utility business, CU plans to accelerate the energy transition by growing its investments in renewable energy products.
Safety net
Fortis is second to none if you want a safety net and defensive stock. Since around 99% of its assets are regulated, cash flows are predictable and stable. The $26 billion electric and gas utility company is always a step ahead in enhancing shareholder value.
According to management, the new $22.3 billion five-year capital plan will enable Fortis to raise its rate base to $46.1 million by 2027. It should also support annual dividend growth of 4% to 6% through the same year.
Meanwhile, major capital projects, including the Advanced Metering Infrastructure project for the British Columbia Utilities Commission, are progressing. It should commence by the second half of 2023 once the replacement of residential and small commercial meters is complete.
Other growth initiatives include further expansion of the electric transmission grid in the United States. The expansion will facilitate the interconnection of cleaner energy.
A goldmine
Anything that produces a desired financial outcome is a gold mine. TFSA investors liken the account to a gold mine because of its salient features, including tax-free withdrawals. Whether you invest $10,000 in Canadian Utilities or Fortis, the capital transforms into tax-free retirement income in a TFSA.
