Smart TFSA Contributions: Where to Invest $7,000 Wisely

TFSA investors can play smart and get the most from their new $7,000 contribution from two high-yield dividend payers.

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Inflation is a bane for consumers, but not for Tax-Free Savings Account (TFSA) users. Because of high inflation in 2022 and 2023, the annual contribution limits were indexed to inflation and increased by $500 to $6,500 and $7,000, respectively.

TFSA contributions appear small but are powerful in a tax-advantaged investment account like the TFSA. Besides maximizing the new contribution limit, seasoned TFSA users will invest wisely. You can make the most of your $7,000 with Diversified Royalty Corporation (TSX:DIV) and Rogers Sugar (TSX:RSI).

They are cheap stocks because the combined share price is less than $10. However, both dividend stocks are reliable regarding dividend yields and payment consistency. All earnings and dividend income in your TFSA are tax-exempt.

Fully recovered from the pandemic

Diversified Royalty collects predictable royalty streams from established multi-location businesses and franchisors. This $456 million multi-royalty corporation has eight royalty partners. Mr. Lube is joined in the royalty pool by Air Miles, Nurse Next Door, Mr. Mikes, Oxford Learning, Sutton, Stratus, and Bar Burrito.

At $2.77 per share, current investors enjoy a 4.45% year-to-date gain and partake in the lucrative 9.02% dividend yield. If you’re going all in, your $7,000 can purchase 2,527 shares and generate $52.62 in tax-free passive income monthly. The payout frequency of this industrial stock is monthly.

In 2023, revenue increased 25% to $56.5 million versus 2022, while net income jumped 103.9% year over year to $31.7 million. The top and bottom lines were both record results. Mr. Lube + Tires accounted for 46.1% of the adjusted revenue.

The trademark acquisition of BarBurrito Restaurants, the eighth royalty partner, was completed in October 2023. Management added that Mr. Lube + Tires, Oxford, and Mr. Mikes delivered record results and are positioned for growth in 2024. Sean Morrison, President and CEO of DIV, added that Q4 2023 was another record quarter and the royalty company’s best-ever quarter in adjusted revenues.

DIV incurred losses in 2020 but has fully recovered from the global pandemic. Only the royalty income from AIR MILES is decreasing, although the trend could reverse soon as the business stabilizes. Meanwhile, DIV plans to seek out potential transactions in the Canadian and US markets this year.

The team will focus on educating potential US royalty partners about the unique trademark and royalty structure. DIV incurred losses in 2020 but has fully recovered from the global pandemic.

Robust fundamentals

Rogers Sugar can be a stand-alone investment or a complement to Diversified Royalty for diversification purposes. This consumer staples stock trades at $5.19 per share and pays a generous 6.94% dividend. Moreover, the stock hardly experiences wild price swings.

The $663.9 million company is the largest refined sugar distributor in Canada. It also produces premium-quality, higher-margin maple syrup. In Q1 2024, revenue increased 10.4% to $288.7 million compared to Q1 2023, while net earnings declined 5.6% year over year to $13.8 million.

Its President and CEO, Mike Walton, expects improved financial results in the coming quarters following the end of a labour dispute at the Vancouver refinery.

Dependable income providers

Diversified Royalty and Rogers Sugar are dependable income providers. The former is doing exceptionally well post-pandemic, while the latter maintains robust fundamentals.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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