The Tax-Free Savings Account (TFSA) is available to Canadians 18 years old and above. A TFSA is not an ordinary savings account because of its tax-free features and versatility. Cash is okay but not advisable since it’s a basket that accepts various income-producing assets in the financial markets.
Most users prefer dividend stocks because of higher potential returns and faster capital growth through dividend reinvesting. Besides the systematic wealth-building process, there are TFSA strategies to make the most of your $7,000 contribution limit in 2024 and maximize wealth.
Go tax-free all the way
The TFSA should be tax-free for life, from earnings and money growth to withdrawals. Thus, work within the limit and do not over-contribute to avoid paying penalty tax on the excess contribution. However, if you have unused contribution limit in 2023, add it your new contribution limit to buy more dividend stocks.
Refrain from withdrawing funds
TFSA withdrawals are tax-free but should only be done when necessary or for emergencies. You lose the contribution room every time you withdraw and wait for next year to contribute the same amount.
Reinvest the dividends
Canadian Western Bank (TSX:CWB) and TC Energy (TSX:TRP) are ideal stock holdings in a TFSA. Besides the attractive dividend yields, TFSA investors can reinvest the dividends four times a year. You harness the true power of compound interest through dividend reinvesting. Your investment and dividends grow together and result in significant gains in the long run.
Top-performing bank stock
CWB is the top-performing bank stock on the TSX today. The $3 billion regional bank has endured massive industry headwinds in 2023. At $31.12 per share, current investors enjoy a 34.2% year-to-date gain on top of the 4.38% dividend yield. The quarterly dividends should be safe, given the low 38.5% payout ratio. Moreover, it has a dividend growth streak of 31 years.
In fiscal 2023, CWB’s revenue and net income increased 3% and 5% year-over-year respectively to $1.11 billion and $324.3 million. Notably, its provision for credit losses (PCL) in Q4 declined 19.7% to $9.8 million versus Q4 fiscal 2023.
“We expect to maintain strong financial results in fiscal 2024 against continued volatility in economic and market conditions,” said Chris Fowler, CEO of CWB.
Solid long-term investment
TC Energy remains a solid long-term investment if you’re building retirement wealth. At $52.35 per share, the dividend offer is 7.18%. With the quarterly compounding frequency, a $7,000 investment in this large-cap energy stock will swell to $20,355.64 in 15 years, or $29,054.52 in 20 years.
The $54.3 billion company operates three complementary energy infrastructure businesses, including natural gas, and oil and liquids pipelines. Management announced the plan to spin off its Liquids Pipeline business and form another independent investment-grade company.
TC Energy is a dividend aristocrat owing to 23 consecutive years of dividend increases. The company expects the diversified high-quality infrastructure assets and secured growth projects worth $32 billion to support its 3% to 5% annual dividend growth guidance.
Do it in 2024
The abovementioned strategies are proven ways to maximize wealth in a TFSA in 2024. Also, dividend growers like CWB and TC Energy are suitable in a tax-advantaged account.