TFSA (Tax-Free Savings Account) investors have plenty of reasons to put their latest contribution to work on passive-income plays. Indeed, the broader basket of low-cost dividend stocks has appreciated a great deal from last year’s lows. However, if rates have, in fact, peaked, I think yield-heavy securities could be in a spot to gain for investors over the next three years after delivering somewhat mixed performance since the pandemic began.
In this piece, we’ll look at two passive income powerplays that I believe combined the best of both worlds: a great yield and a relative degree of safety.
Of course, investors will need to be patient with the following income plays if they seek a side of gains alongside their dividend (or distribution) payments through the year.
Without further ado, let’s check out shares of hard-hit Canadian bank TD Bank (TSX:TD) and dirt-cheap retail REIT SmartCentres REIT (TSX:SRU.UN).
TD Bank
TD Bank stock finished last year with a nice surge. Though the bounce off lows wasn’t as impressive as some of its peers in the Big Six banking scene, I view the move as a reason to breathe a nice sigh of relief. After all, 2023 was a hectic year for the bank, with the falling through of its First Horizons deal as regional banks in the United States took a massive hit to the chin almost one year ago.
It’s been a lousy 2024 for TD Bank stock thus far, with shares down more than 4% in just under two weeks of trading. Indeed, sudden pullbacks are to be expected after a significant rally off lows. Though TD Bank stock has been quite the dud in the past two years, down 18% over the timespan, I don’t view TD stock as falling substantially below its 52-week lows of around $76.
I view the level as having strong support. As such, income investors interested in the 4.91% yield have my blessing to buy a few shares after the stock’s ugly start to the year. At this pace, I view TD as being an even better deal than some of its rivals. At the end of the day, you’re getting a strong bank with exposure to both sides of the border (Canada and the U.S.) and one of the smartest management teams in the industry.
SmartCentres REIT
SmartCentres REIT is a strip mall-focused REIT with growing exposure to the residential scene. Shares collapsed violently last year but experienced a nice relief rally going into year-end. Indeed, the Santa rally was kind to SmartCentres REIT in 2023. Only time will tell if SRU.UN can surge even higher from here.
Regardless, I’m attracted by the 7.32% distribution yield alongside the newfound momentum. The payout looks safe, and the path higher may be the likeliest for the new year. Either way, Smart owns some great properties that will continue to generate impressive sums of cash. So, while the focus of many market participants is on generative artificial intelligence, investors may wish to focus more on cash-generative firms with juicy payouts.
Also, since REIT distributions don’t get the same tax-favourable treatment as dividends from Canadian firms, perhaps a spot in your TFSA is deserved! As always, put in your own homework on a security and optimal tax-allocation strategies before you pick up shares.
