The Canada Revenue Agency (CRA) resets the Tax-Free Savings Account (TFSA) annual contribution room each year but kept in at $6,000 from 2019 to 2022. However, the CRA increased the limit to $6,500 due to the significant increase in the agency’s indexation of the limit to inflation from 2.4% to 6.3%.
Enter 2024, and the dollar limit for the tax-advantaged account has increased by $500 for the second consecutive year. Moreover, someone who has never contributed but is eligible for the TFSA since 2009 would have a hefty cumulative contribution room of $95,000.
Big TFSA change
Despite the decrease in CRA’s indexation from 6.3% to 4.7%, inflation boosted the TFSA limit in both instances. For regular users of the ultimate tax-free investment vehicle, the $7,000 new limit in 2024 is a big change.
If finances allow, now would be the best time to use your TFSA limit to purchase high-yield stocks Doman Building Materials Group (TSX: DBM) or Acadian Timber (TSX: ADN). This pair of generous dividend payers outperformed the TSX last year, notwithstanding the massive headwinds and elevated market volatility.
Strong business platform
Doman trades at less than $10 per share, and only $8.29, you can partake in the 6.67% dividend. The $730.1 million company is North America’s leading producer of pressure-treated lumber, with ample support from 32 operating plants. Its wholly-owned subsidiaries distribute related building materials.
The fourth-quarter (Q4) and full-year 2024 results aren’t out yet, but profit in Q3 was impressive. In the three months ending September 30, 2023, net earnings jumped 81.9% to $21.15 million versus Q3 2022. According to management, lumber prices stabilized and remained relatively stable through the first nine months of 2023.
Doman credits the demand for the products and strong fundamentals of the end markets for its resiliency in 2023. The business isn’t immune from the price volatility of construction materials, but mitigation strategies are in place to minimize the impact.
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Management believes an aging housing supply will help counter high interest rates and encourage repair and renovation spending. Board chairman Amar S. Doman added that the quarterly and year-to-date results validate the strength of the business platform on both sides of the border.
A viable option
Acadian Timber also operates in the construction industry. At $17.54 per share, the dividend offer is 6.61%. The dividend payments should be safe and sustainable given the less than 50% payout ratio. The $301.4 million company owns and manages freehold timberlands (1.1 million acres) and provides timber services.
In the nine months ending September 30, 2023, sales increased 4.4% to $69.66 million versus the first three quarters of 2022. Notably, net income and free cash flow rose 32.1% and 20.1% year over year to $17.84 million and $12.19 million, respectively.
Regional demand and pricing remain stable, but expect Acadian to deliver improved financial performance with the easing inflationary pressure and the start of rate cuts soon.
You can set aside more money
With the new TFSA limit, accountholders can set aside more money to meet their short and long-term financial goals, if not earn more tax-free passive income. A $7,000 investment in Doman held in a TFSA will produce $116.73 in tax-free, quarterly passive income.
