The Tax-Free Savings Account (TFSA) can help secure your future. However, is there a blueprint for using the TFSA as a primary investment vehicle? Successful TFSA investing requires only four simple steps.
Follow the rules and contribution limits to ensure zero tax penalties. Limit your stock investments to four blue-chip stocks. Maintain a long-term view while maximizing the annual limits. Lastly, you should reinvest the dividends to compound the TFSA balance faster.
Harvest time is when you retire 15 or 20 years later. With dividend income from Canadian stocks, the Canada Pension Plan (CPP), and Old Age Security (OAS), you will be financially problem-free in retirement. The principal remains intact and can be passed on as generational wealth.
Big bank
A TFSA investment portfolio should hold at least one Big Bank stock. The Royal Bank of Canada (TSX: RY) is a no-brainer choice because it’s the largest TSX stock and Canadian bank by market capitalization. Like its sector peers, this $205.5 billion lender has been paying dividends for over 100 years (154 years and counting).
At $145.34 per share, you can have peace of mind in return. Current investors enjoy a 10.71% year-to-date gain on top of the decent 3.80% dividend yield. In Q1 fiscal 2024, net income increased 14% to $3.6 billion versus Q1 fiscal 2023, although the provision for credit losses (PCL) rose 52.8% year over year to $813 million.
According to its CEO, David McKay, RBC’s diversified earnings stream more than mitigated the increase in PCL. He adds that regardless of monetary and economic scenarios, the Big Bank’s diversified business model and franchise scale ensure growth and a strong balance sheet.
Telco giant
BCE (TSX: BCE), Canada’s largest telecommunications firm ($42.7 billion in market cap), is a cash cow. Besides the lucrative 8.53% dividend, this $42.7 billion telco giant is a dividend aristocrat owing to 14 consecutive years of dividend increases. In Q1 2024, net earnings fell 42% year over year to $457 million.
Its President and CEO, Mirko Bibic, said, “We have been putting the right building blocks in place over the past few quarters as we transition to a company focused on providing our customers with the communications, tech services and digital media they need now and in the future.”
Dividend king
Fortis (TSX: FTS), Canada’s second dividend king, is a must-own stock for all TFSA investors. The $27.4 billion electric and gas utility company has a dividend growth streak of 50 years. If you invest today, the share price is $55.49, while the dividend yield is 4.25%.
In addition to its low-risk profile, Fortis targets between 4% and 6% annual average dividend growth through 2028. With the new $25 billion capital plan, management expects the rate base to grow from $37 billion in 2023 to $49.4 billion in 2028.
Oil bellwether
An oil bellwether like Suncor Energy (TSX: SU) deserves a spot in your TFSA stock portfolio, especially in 2024. At $54.57 per share, the year-to-date gain is 30.1%. No more sales pitch is needed as this energy stock outperforms RBC, BCE, Fortis, and the broader market. The $70 billion integrated energy company pays a 3.99% dividend.
Fail-safe TFSA
RBC, BCE, Fortis, and Suncor Energy in a TFSA is like having a fail-safe mechanism. The market will experience ups and downs but income streams will flow as is.
