Canadian investors get to make a fresh $7,000 contribution to their TFSA (Tax-Free Savings Account) in 2024. That is a 7.6% increase over last year’s contribution increase.
Saving on tax can accelerate long-term returns
Every tax-free dollar invested through a TFSA counts. When you don’t pay any tax on your investment income (capital gains, interest, and dividends), you save as much as 10–20% more of your returns. When compounded over a lifetime, that can be worth thousands of dollars saved from tax.
If you don’t have $7,000 to contribute immediately, you can quickly get it if you are thrifty and save a little extra every month. Break up a $7,000 contribution throughout the year and you only need to contribute $583 every month.
With $7,000 you can build a diversified portfolio for your TFSA. Here’s how you could split the portfolio between three unique Canadian stocks that also happen to pay dividends as well.
A dividend anchor for any TFSA
Every investor should have a safe anchor for their TFSA. These are not stocks that rapidly rise. However, they have a steady history of returns and provide income when the market is volatile. One of the best for this is Fortis (TSX:FTS).
With 10 regulated utilities across North America, Fortis has a large, stable, and diversified operation. The company has a strong balance sheet and prudent management.
FTS has grown its dividend for 50 consecutive years. The utility stock yields 4.3% today.
Fortis has plans to keep growing its dividend by 4–6% a year for the coming five years. All tallied, $2,333 would buy 42 shares at today’s price of $55 per share.
A growth and income stock
Enghouse Systems (TSX:ENGH) could be on the verge of some good things. While the stock has struggled over the past five years, it is very well positioned today.
Enghouse has traditionally grown by acquiring software companies in the communications and asset management space. Today, it has $240 million of cash and no debt.
Many companies in its segment have hit hard times, so valuations have pulled back considerably. It tends to target 15–20% annual returns on acquisitions. If it deploys a majority of cash, this could propel considerable gains.
Enghouse’ business generates a lot of cash, so it also pays an attractive 2.6% dividend. A sum of $2,333 would buy 68 shares at a price of $34 per share.
An undervalued TFSA stock
Another good TFSA stock is Calian Group (TSX:CGY). With a market cap of $680 million, the company is still small enough to provide a substantial return from here.
Calian operates a diverse business with operations in healthcare, specialized training, cybersecurity, and satcom. It has a strong mix of government and private customers.
The company just made two major acquisitions. It is projecting strong double-digit growth in 2024. The market hasn’t caught on, so now may be a good time to buy.
CGY stock trades with a price-to-earnings ratio of 12 and happens to also pay a 2% dividend yield. An investment of $2,333 of TFSA cash would buy 40 shares at $57 per share.
