The Tax-Free Savings Account (TFSA) is a one-of-a-kind investment vehicle that helps accountholders build long-term, tax-free fortunes. Young Canadians can become millionaires over time by maximizing the annual contribution rooms (if possible) and harnessing the power of compounding through dividend reinvesting.
Dividend payers Enbridge (TSX: ENB) and MCAN Mortgage (TSX: MKP) could assist long-term investors in reaching $1 million or more. The former is a prominent energy industry player, while the latter is a loan company subject to the Office of the Superintendent of Financial Institutions Canada (OSFI) regulations.
Aiming for $1 million in a TFSA is ambitious but rewarding if successful. A 4% annualized return will generate $40,000 in tax-free income yearly. The average dividend yield of Enbridge and MCAN is 8.62% or more than double. Thus, assuming the TFSA limit ($7,000) and yield are constant, you could achieve the target in 25 years or less with dividend reinvesting.
Strong buy anytime
Enbridge is an excellent long-term investment not only for its mouth-watering 7.67% dividend ($48.36 per share). This Dividend Aristocrat has consistently paid quarterly dividends, regardless of economic conditions. The $102.8 billion midstream company’s dividend-growth streak of 29 years affirms its commitment to share its profits with loyal shareholders.
“Growing our dividend remains an important component of our investor value proposition,” said Greg Ebel, president and chief executive officer (CEO) of Enbridge. We remain committed to annual dividend growth that is consistent with our medium-term distributable cash flow outlook and keeping our dividend payout ratio within 60-70% of distributable cash flow (DCF).
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Enbridge’s midstream assets include oil & gas pipelines, natural gas utilities, and renewable power assets. Expect more diversified operations when Enbridge completes the transaction with Dominion Energy and becomes the owner of three natural gas utilities. Moreover, most assets are under long-term contracts, fee-based, or regulated.
For 2024, Enbridge will deploy around $6 billion of capital, including maintenance capital. Management forecasts an EBITDA between $16.6 billion and $17.2 billion in the base business and a DCF per share of $5.40 to $5.80. Because of strong system utilization, the liquids pipeline business would be the key growth driver (54-56% of EBITDA). The financial guidance excludes the acquisitions from Dominion.
Well-structured business
Aside from being an OSFI-supervised loan company, MCAN is a Mortgage Investment Corporation. The $563 million company falls under the Income Tax Act (Canada) and is Canada’s largest privately owned mortgage financing company. If you invest today, the share price is 15.89%, while the dividend yield is an eye-popping 9.57%.
MCAN Homes, MCAN Capital, and MCAN Wealth are the core business divisions, and MCAN aims to become the preferred mortgage lender and investor in chosen real estate markets. The full-year 2023 results aren’t out yet, but earnings in the first three quarters were solid.
In the nine months that ended Sept. 30, 2023, net income rose 84% year over year to $57.64 million. MCAN believes the business is well structured, and its focus on multiple facets of the Canadian residential real estate market balances volatility and generates considerable income.
Simple strategies
Young Canadians can become millionaires by saving and investing early, maximizing TFSA contributions yearly, and investing in sound businesses. The potential TFSA balance should be enormous or at least $1 million.
