You should maximize your Tax-Free Savings Account (TFSA) to take full advantage of the tax-free growth. Some Canadians like to save a portion of their TFSA room for fixed-income investments like Guaranteed Investment Certificates (GICs) that earn interest income, which are otherwise taxed at your marginal tax rate in non-registered accounts.
You should also buy quality dividend stocks in your TFSA for the chance to create greater wealth. For instance, if you’re able to generate annual returns of 12% per year, you would double your investment in about six years, according to the Rule of 72. Here are a couple of dividend stocks that have the potential to deliver total returns at a compound annual growth rate of about 12% per year over the next five years.
Brookfield Infrastructure
You can invest in Brookfield Infrastructure Partners (TSX: BIP.UN) or Brookfield Infrastructure (TSX: BIPC) to gain exposure to Brookfield Infrastructure. The company offered BIPC, which is also listed on the New York Stock Exchange, to expand its investor base, particularly to attract U.S. investors for simpler tax reporting.
However, BIPC tends to trade at a premium valuation to BIP, which consequently offers a higher cash-distribution yield of almost 4.8%, which is about 17% more income than BIPC’s dividend yield. Therefore, in a TFSA, investors should consider investing in Brookfield Infrastructure Partners for higher income, which could lead to greater total returns.
The global utility is able to provide resilient performance through economic cycles. Its diversified infrastructure assets across sectors have demonstrated the ability to pay a solid, growing cash distribution. It has increased its cash distribution for about 15 consecutive years, and it has a large backlog of growth projects to support continued dividend growth. Its five-year cash-distribution growth rate is 6.6%, and it aims to continue dividend growth of 5-9% per year.
At $43.28 per unit at writing, the 12-month analyst consensus price target suggests a substantial discount of 29%. So, the top utility stock has a higher probability of driving outsized returns over the next few years.
Jamieson Wellness
Jamieson Wellness (TSX: JWEL) appears to be a cheap dividend stock for the TFSA. It has declined 27% in the last 12 months. The latest weakness might have been triggered by lowered guidance. Its latest 2023 outlook is adjusted earnings before interest, taxes, depreciation, and amortization growth of 13-16% and adjusted earnings-per-share growth of up to 5.2%.
Higher interest rates are one dampener for its growth. At the end of the second quarter, Jamieson Wellness’s debt-to-asset and debt-to-equity ratios were 59% and 1.5 times, respectively. Compare these ratios to the pre-pandemic levels of 54% and 1.2 times, respectively, in 2019.
Jamieson Wellness manufactures, distributes, and markets branded natural health products, including vitamins, minerals, and supplements, and it is categorized as a consumer staples stock. So, if it re-sparks growth in the future, it can lead to solid price gains.
At about $26 per share at writing, it trades at a forward price-to-earnings ratio of about 16.4 times. The 12-month analyst consensus price target suggests a whopping upside potential of 59%. The stock is also a Canadian Dividend Aristocrat. In fact, it just increased its dividend by close to 11.8% last month. At the recent quotation, it offers a safe dividend yield of 2.9%.
