Tax-Free Savings Account (TFSA) users know that the Canada Revenue Agency (CRA) has been setting annual dollar limits. Also, if you turned 18 after 2009, your TFSA contribution room starts when you turned 18. Since the contribution room accumulates yearly, the cumulative limit in 2024 is now $95,000.
Assuming the annual contribution limit for 2025 is unchanged or still $7,000, the new accumulated limit would be $102,000, or six figures for the first time. But even if there’s no additional contribution room next year, $95,000 can become $1,000,000 for seven-figure wealth.
The way to $1,000,000
Let’s assume further that your available TFSA contribution room is $95,000. Through the power of compounding, you could have a million-dollar TFSA. The way to achieve seven figures is to invest the money in Enbridge (TSX: ENB) and Bank of Nova Scotia (TSX: BNS) and reinvest the quarterly dividends (four times a year).
The premise is an equal allocation in Enbridge and BNS ($47,500 investment each). Given the current share prices and an average dividend yield of 6.81%, the final balance (principal + dividend earnings) after 35 years would be approximately $1,016,474.
If the final balance is your nest egg and both stocks are holdings for life, the tax-free quarterly income is $17,406.11. Furthermore, TFSA withdrawals are also tax-free.
Must-own investment
Enbridge is an ideal TFSA stock and a must-own investment for income-focused investors and retirees. Besides the hefty dividend yield (7.15% currently), the $108.7 billion energy infrastructure company has increased dividends for 29 consecutive years and a 69-year dividend track record.
In their letter to shareholders dated March 5, 2024, Board Chairman Pamela Carter and President & Chief Executive Officer (CEO) Greg Ebel said Enbridge’s mission is to be the first-choice energy delivery company of stakeholders. The four core franchises, led by the liquids pipeline business, bring scale and diversification and produce highly predictable cash flow.
Enbridge seized a “once-in-a-generation opportunity” last year by announcing the plan to acquire three gas utilities from Dominion Energy. The Canadian company would have a significant presence in the U.S. utility sector when the transaction closes this year.
For 2023, adjusted earnings and cash from operating activities rose 0.9% and 26.8% to $5.7 billion and $14.2 billion versus 2022. With the $300 million year-over-year increase in distributable cash flow, the board approved a 3.1% increase in the quarterly dividend.
Dividend longevity
BNS is Canada’s fourth-largest bank, and its 6.47% dividend yield is the highest among the big bank stocks. Dividend safety and consistency shouldn’t be a concern. The $80.11 billion bank has been paying dividends since 1832, or 192 years. At $65.55 per share, current investors are up 4.91% year to date.
In the first quarter (Q1) of fiscal 2024, net income climbed 25.1% to $2,2 billion versus Q1 fiscal 2023. The provision for credit losses (PCL) increased 50.8% year over year to $962 million.
“The bank delivered solid earnings this quarter driven by strong revenue growth, margin expansion and expense discipline,” said Scott Thomson, President and CEO of BNS. He added that the balance sheet metrics strengthened after the quarter.
No-brainer buys
Enbridge and BNS are no-brainer buys for income-focused investors. The large-cap, high-yield dividend stocks are also the way to seven-figure TFSA wealth.
