The Canada Revenue Agency (CRA) has set the 2024 Tax-Free Savings Account (TFSA) limit at $7,000. The timing couldn’t be better, given that the TSX’s bearish momentum has placed some strong stocks at a great value. Some sectors like telecom, real estate, and energy infrastructure are trading at their lows as high debt is stressing their profits in a high-interest rate environment. All three sectors are good dividend payers you can consider investing in this year.
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An apt time for TFSA investors to invest $7,000
There is never a better time to buy these dividend superstars at a bargain price through a TFSA. If you are worried about a slowdown or pause in dividend growth, or worse, a dividend cut, then the high dividend yield is the compensation for the risk. In stocks, an attractive yield always comes with some degree of risk. If you know why you are investing in the stock the risk is manageable.
Warren Buffett says, “Risk comes from not knowing what you are doing.” While there are factors that could further pull down the three sectoral stocks, long-term upsides could send them rallying after they hit bottom. You can’t time the market and buy at the bottom. But you can buy these stocks closer to their lows.
Where to invest the $7,000 TFSA contribution limit?
BCE stock
The telecom giant BCE (TSX: BCE) is a stock to buy at the dip. It has fallen 10% in the last 30 days as the company’s 2023 earnings did not impress investors. High interest costs and capital spending have started to affect its profits and free cash flows (FCF). While the telco met its 2023 guidance, it has guided a decline in profits. In 2024, the company will undergo a major restructuring as it sells its declining business (radio stations) and focuses on the growing businesses (cloud services and digital transformation).
BCE has slowed its dividend growth from 5% to 3.1% in the light of restructuring, which will see around 4,800 layoffs. The restructuring will bring a one-off expense in 2024 but will generate long-term savings and enhanced operating efficiency.
This stock is a buy-and-hold for at least 10 years because today’s investments will generate higher cash flow tomorrow as more 5G use cases arise. Remember, 5G infrastructure has set the stage for artificial intelligence (AI) at the edge. Once self-driving cars and smart cities become widely available, cash will start flowing for Bell’s 5G infrastructure.
Moreover, interest rate cuts will create an opportunity to restructure debt and reduce interest expenses. BCE stock is closer to being oversold, which means there is limited downside and more upside. The decline in stock price and 3.1% dividend growth have inflated the dividend yield to 7.93%, above the average yield of 5.75%.
Real estate and other stocks
On similar lines, CT REIT (TSX: CRT.UN) is a relatively safer stock among REITs to invest in. Its latest earnings showed stable revenue growth of 3.7%, but net income fell 29.3% as the fair value of its properties declined. As CT REIT has no intent to sell its retail properties, the decline in the fair value of properties is not realized and does not affect its cash flow.
Since its single largest tenant Canadian Tire is on a strong footing, the REIT will continue to enjoy stable growth in rental income. As for distributions, the REIT will likely increase its rent by 1.5% this year and pass on the benefit of the higher rent collected from new properties it developed last year. I expect the REIT to maintain its trend of increasing the distribution per share by 3% in June.
Apart from the above two dividend stocks, you could also consider investing some of your TFSA money in high-growth stocks like BlackBerry and Bombardier, as they are an opportunistic buy now.
Investing tip
A good investment strategy is to invest small amounts every month as the stock market is volatile. And given the way it has been see-sawing every two months, a $500-$700 investment in two or three stocks every month would help you reduce the average cost per share.
