Any income earned in a Tax-Free Savings Account (TFSA) in the form of dividends, capital gains, or even interest is exempt from Canada Revenue Agency taxes. So, investing in the TFSA can help you generate tax-free income for life.
While it is called a savings account, the TFSA is a registered account where you can hold a variety of qualified instruments such as stocks, bonds, and mutual funds, among others.
However, according to a Bank of Montreal survey, 47% of Canadians have their TFSA savings in cash, thereby missing out on opportunities for tax-free growth.
In 2024, the TFSA contribution limit increased to $7,000, raising the maximum cumulative contribution limit to $95,000. Comparatively, the average TFSA account balance increased by 9% year over year to $41,510 in 2023.
You can use a portion of your TFSA contribution room to hold quality TSX stocks such as Brookfield Asset Management (TSX: BAM) and EQB (TSX: EQB). Let’s see why.
Is Brookfield Asset Management a good stock to buy?
One of the largest alternative asset managers in the world, Brookfield Asset Management owns and operates a diversified portfolio of businesses across verticals such as utilities, transport, data centres, and clean energy. It ended the third quarter (Q3) of 2023 with more than US$850 billion in assets under management and plans to raise US$1.2 billion of debt to acquire American Tower’s assets in India.
The deal is valued at US$2.5 billion and should close this year. Recently, BAM also announced the closing of its flagship global infrastructure equity fund BIF V, raising US$30 billion.
BIF V is the largest closed-ended private infrastructure fund globally, supported by a group of 200 other partners, including pension funds, sovereign wealth funds, and family offices. The fundraising exceeded the company’s target of US$25 billion and is 40% larger than BIF IV.
BAM will deploy these funds to widen its portfolio of cash-generating assets, allowing the company to pay shareholders a dividend yield. Currently, it pays a quarterly dividend of US$0.32 per share, indicating a yield of 3.2%. Priced at 26 times forward earnings, BAM stock trades at a reasonable valuation given its stable cash flows and growing earnings base.
Is EQB stock still undervalued?
Several bank stocks have trailed the broader markets in the last 12 months due to a tepid lending environment amid rising interest rates. However, EQB stock is up 42% in the last year due to its growth in loans under management, higher margin, rising non-interest revenue, and its acquisition of Concentra Bank.
It recently announced the acquisition of a 75% interest in ACM Advisors, an alternate asset manager with $5 billion in assets under management, further diversifying EBQ’s revenue base.
EQB stock has surged over 350% in the last 10 years after adjusting for dividends. Despite its outsized gains, EQB stock is priced at 7.8 times forward earnings, which is very cheap.
Analysts expect its adjusted earnings to expand by 20% annually in the next five years, resulting in further dividend hikes. EQB pays shareholders an annual dividend of $1.60 per share. These payouts have risen 12.9% annually in the last 19 years.
