The end of the year is coming, and with it a new contribution limit for Canadians. Another $7,000 looks to be added to the Tax-Free Savings Account (TFSA). This can lead to a huge opportunity for those wanting to create passive income in 2024.
That being said, I’m not saying you should dive into just dividend stocks. I’m also not saying that you should find the top growth stocks. Instead, let’s look at what usually happens as a bear market turns into a bull market and find out where to invest.
Will history repeat?
There are a few things going on right now that investors should be aware of. For instance, as we head to the end of the year, there has historically been a Santa Claus rally on most occasions. This is when there seems to be some optimism over the new year and when retail investors might be taking over as institutional investors take off for the holiday season. This can lead to a rise in share prices across the board.
However, that can lead to a fall when the institutions come back from holiday. So, if we’re leaving a bear market and going into a bull market, it’s important to know which companies investors will get back into and which will stay on the sidelines.
Historically speaking, companies that tend to do well first are those that have already been fairly stable during a bear market. As investors slowly dip their toes back in investment waters, they’ll be looking for companies that will stand to lose less should the market drop again.
What sectors are those?
Again, think about the type of sectors that investors and people in general will want to be involved in, no matter what. That would include industries such as consumer staples, utilities, healthcare and the like. So, that’s exactly where investors will want to consider investing as we head out of 2023, and into a potentially bull market of 2024.
In the case of consumer staples, look for companies that have done well not just in the last few years, but decades. These will offer you a great chance to buy the dip and see long-term growth. Usually, they’ll also come with a dividend to add extra passive income.
Utilities can also be great as well as these are products that we will need no matter what is going on in the world. Whether it’s heating your home or lighting the drive to work in the early morning, utilities will be needed to power that.
As for healthcare, the reason is obvious. However, this can be a bit more tricky to navigate. So, I would stick closer to consumer staples and utilities in the early days of a bull market.
Creating passive income for your TFSA
Now, you’re ready to look for some passive income for your TFSA. Some great options I would consider right now are Dollarama (TSX:DOL) and Hydro One (TSX:H). Dollarama stock has proven that it can withstand even a pandemic well. The company manages to hold off on raising the prices of its goods until all other companies have. This brings an onslaught of new customers that come for cheap goods but stay for the brands. Brands that have increased in notoriety over the last few years. And as Dollarama stock continues opening stores and acquiring low-cost retailers, there’s reason to buy the stock now for future growth.
Hydro One stock is another strong company that’s newer on the utility scene. Even so, it offers long-term growth for investors getting in now, almost like getting in on the ground floor when compared to other utility stocks. The renewable energy power provider supports the province of Ontario but has already started expanding. So, again, you could gain some serious long-term growth from this stock as well.
Dollarama stock is already up 17% in the last year with a dividend yield of 0.27%. Hydro One stock meanwhile offers a 3.08% dividend yield, with shares up 3% in the last year. So, you can potentially gain large passive income in both returns and dividends for your TFSA investing now. And then, hold on for as long as possible.