Eligible Canadians have new TFSA contribution room of $7,000 this year. Remember also that unused room from previous years is carried forward. Futhermore, withdrawals made in 2023 can be re-contributed back into a Tax-Free Savings Account (TFSA) as soon as the new year starts. And, of course, room from TFSA withdrawals made in other previous years can also be re-contributed anytime.
Here’s where you might invest your TFSA contributions. For investors who want no risk of loss of their money, such as savings they plan to use to buy a car within a year, they can put that money in a guaranteed investment certificate (GIC) to earn interest income.
Earn interest income
Interest income is taxed at your marginal tax rate if earned in non-registered accounts. So, some Canadian investors choose to earn interest income in their TFSAs to shield the income from income taxes.
Currently, the best one-year GIC rate is about 5%. It may be time to lock in some money in GICs if you expect the Bank of Canada to start cutting rates soon. Importantly, traditional GICs guarantee to pay back your principal.
If you have a long-term investment horizon of at least three to five years for your money, you should highly consider buying quality stocks. Check out the Foolish investing philosophy as a guideline for long-term investing. I think Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) is a good dividend stock candidate for long-term TFSA investing.
Buy dividend stocks in your TFSA
Currently, Brookfield Infrastructure Partners offers similar income as one-year GICs. It provides a cash distribution yield of essentially 5% at the recent price. What’s different about BIP is that it has also delivered long-term price appreciation (along with volatility in between). You can play with the graph below to get a sense of its volatility and long-term trend of going up.
Brookfield Infrastructure Partners stock has outperformed the Canadian market and Canadian utility sector in the long run. Over the last decade, the top utility stock delivered annualized returns of about 14.7% per year, turning an initial investment of $10,000 into about $39,460.
BIP.UN, XUT, and XIU 10-Year Total Return Level data by YCharts
It’s true the stock has been beaten down in a higher interest rate environment, though. This could make it a good time to accumulate shares, as there’s a growing demand for infrastructure assets globally. Lots of investments are needed for digitalization and decarbonization. So, BIP is in the right places, as an owner and operator of global infrastructure assets, including utility, transport, midstream, and data infrastructure assets.
BIP’s assets are primarily in the Americas, with 18% in Europe and 14% in the Asia Pacific region. It has utilities that offer regulated transmission and commercial and residential distribution. Additionally, its transport assets include rail, toll roads, and diversified terminals. Its midstream assets transport, store, and process energy.
Importantly, BIP doesn’t simply sit idle on its asset base. Acquiring assets, improving operations, and recycling mature assets and redeploying capital into new investments are a part of its growth plan that targets an attractive long-term 12-15% rate of return. This is probably why it has the ability to drive excellent returns for investors in the long run.