With Christmas just around the corner, the Canada Revenue Agency (CRA) is perhaps feeling a little more charitable than usual. It just announced that the TFSA (Tax-Free Savings Account) will see its contribution limit increase by $7,000 in 2024. That is a 7.7% increase from the contribution limit last year!
The reality is that the CRA is hardly ever charitable. The only reason for the increase is that the contribution limit is indexed to inflation. Since inflation continues to be elevated this year, the TFSA contribution was slated to rise as well.
A potential $95,000 can be invested tax-free in 2024
If you were a Canadian resident and over 18 years of age in 2009, you will be able to contribute a cumulated total of $95,000 in 2024. That is $95,000 that can be invested, earn income (capital gains, dividends, and interest), and have zero tax liability.
Even if you can’t contribute the maximum amount, you are wise to utilize as much TFSA space as allowed. Every new TFSA contribution helps to build long-term wealth. Paying tax on investment income can reduce annual returns by as much as 20%.
If you can invest without paying taxes, you can compound your returns significantly faster. The additional $7,000 of TFSA room is an additional opportunity to compound your wealth at a higher rate of return.
If you were wondering what investment ideas might be suitable for that $7,000 contribution, here are a couple of stocks that could be good picks in 2024.
All the elements you want in a strong TFSA stock
TFI International (TSX:TFII) has been an exceptional compounder over the past decade. It is up 330% over the past five years and 700% over the past 10. Despite its tremendous returns, there is nothing particularly exciting about TFI’s business.
It provides less-than-truckload, courier, truckload, and logistics services across Canada and the United States. It has grown to become a top 10 transport business in North America.
The company is unique because of its highly invested chief executive officer, its decentralized operating structure, its smart and efficient operating prowess, and its capacity to consolidate and integrate transportation businesses into its portfolio.
The transport sector took a hit in 2023, and TFI stock pulled back. It is trading at a discount to many of its larger U.S. peers (despite superior performance). This may be a nice bargain for a TFSA investment.
A TFSA stock for the long term
Another blue-chip stock for your 2024 TFSA contribution is Canadian Pacific Kansas City Railway (TSX:CP). Like TFI, it is also a major transportation stock in Canada.
Railroads provide economically essential transport services of large bulk goods and raw materials. Their infrastructure is impossible to replicate.
Hence, they tend to have very good long-term pricing power. CPKC is one of the oldest companies in Canada, which is a testament to the quality of its business.
Railroading is a cyclical business. CPKC faced a tough year with weather challenges, port strikes, and wildfires. Earnings have come in weaker than expected. Fortunately, this appears to be largely temporary.
CPKC now has the only singular rail network that expands across Canada, the U.S., and Mexico. This should provide CPKC with significant opportunities to create unique service lines for its shipping customers. The company has a target to double earnings over the next four to five years.
CPKC has earned a solid 13% compounded annual total return over the past decade. With higher-than-average growth opportunities, it appears like a great, low-risk addition to any TFSA.
