The Tax-Free Savings Account (TFSA) is junior to the Registered Retirement Savings Plan (RRSP). Still, the purpose is to motivate Canadians to save, secure their financial future, and live comfortably in retirement. Users should find the registered investment vehicle unique in many ways.
All earnings and gains from income-producing assets you hold in your account, such as stocks, are tax-free. Your withdrawals are tax exempt, although contributions don’t count as tax deductions. More importantly, unlike the RRSP, the TFSA has no age limit. With no expiry date, you can keep contributing and earning for as long as possible.
However, if you have a long-term financial goal or are building a nest egg, you need an established dividend payer. Blue-chip BCE (TSX: BCE) is the smart choice and ideal for wealth building. Canada’s largest telco has existed since 1880, and no TFSA investor can outlive its corporate existence. You can leave the 5G stock in your TFSA for years and years without fear of dividends drying up.
Potential money growth
BCE trades at $51.61 per share and pays a juicy 7.46% dividend. A Canadian who has never contributed to a TFSA and is eligible to open an account since its inception will have a cumulative contribution room of $88,000.
Given the share price and yield, 1,705 BCE shares ($88,000 investment) will produce $1,680.80 in quarterly tax-free income. If you reinvest the dividends, the TFSA balance will compound to $184,281.72 in 10 years. Unfortunately, not all will have a contribution room equivalent to the maximum cumulative contribution room.
The Canada Revenue Agency (CRA) sets annual contribution limits to the TFSA, so all users must comply. Thus, you must refrain from overcontributing, or you risk paying penalties (1% of excess contribution). The 2023 TFSA contribution limit ($6,500) can generate $124.15 every quarter. You can reinvest the dividends for faster compounding of your TFSA balance.
New milestones
In the second quarter (Q2) of 2023, net earnings declined 39.3% to $397 million versus Q2 2022, but no one is scared. Despite the profit drop, BCE achieved several milestones during the quarter. Total wireless mobile phone and mobile connected device, retail internet, and IPTV net activations climbed 76.5% to 241,516. Mobile phone subscribers in the wireless segment surpassed 10 million.
Notably, Bell Media’s digital revenue increased 20% compared to a year ago, notwithstanding the ongoing advertising recession. “Bell’s Q2 results demonstrate that our consistent strong execution and delivering the compelling services that our customers want and value is a winning approach,” said Mirko Bibic, president and chief executive officer of BCE and Bell Canada.
BCE also acquired IT services and consulting company FX Innovation. This strategic acquisition enables Bell to deliver leading-edge technology solutions for Canadian businesses and cement its position as a tech services leader.
Divided Aristocrat
Besides the lengthy dividend track record (more than 100 years), BCE is a Dividend Aristocrat owing to 14 consecutive years of dividend hikes. This $47.08 billion telco giant can sustain its hefty dividend payments due to its solid profitable growth. The payouts are safe, and only hefty capital expenditures can slow dividend growth.
