Owning a Tax-Free Savings Account (TFSA) is like sitting on a gold mine. The one-of-a-kind investment vehicle is a source of great wealth. It would be a waste of a treasure if you have one but don’t use it effectively to serve its purpose. Tax-free money growth (and withdrawals, too) is the unique feature of a TFSA.
Users can have a substantial nest egg in the sunset years by contributing regularly if they can’t maximize the annual limits. Also, you can add two more zeros to a $10,000 investment today over time through the power of compounding.
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Preferred investments and strategy
A TFSA is a tax-sheltered savings account, not an ordinary savings account. The qualified investments in it besides cash include bonds, guaranteed income certificates (GICs), mutual funds, exchange-traded funds (ETFs), and stocks. Most TFSA investors prefer dividend stocks because balances grow faster with dividend reinvestment.
Peyto Exploration & Development Corp. (TSX: PEY) and Dream Industrial (TSX: DIR.UN) are not your typical anchors in a TFSA investment portfolio but are excellent second-liners for their generous dividend yields. The energy stock trades at $14.83 per share and pays an 8.9% dividend, while the real estate investment trust (REIT) costs $13.09 and yields 5.4%.
Since both stocks pay monthly dividends, a $5,000 investment in each transforms into $59.38 in tax-free monthly passive income. However, note that the 2024 TFSA annual limit is $7,000 and that you can’t over-contribute. You can start with $3,500 each, then invest $1,500 in each the following year.
Another salient TFSA feature is the no lifetime contribution limit, so unused contributions carry forward indefinitely. Moreover, there’s no age limit on how long you can be a TFSA account holder.
High-quality gas properties
Peyto explores for and produces unconventional natural gas in Alberta’s Deep Basin. The $2.9 billion natural gas-weighted E & P company builds value through its high-quality gas properties. As of this writing, current investors enjoy a 28.9% year-to-date gain on top of the lucrative monthly dividends.
In Q1 2024, natural gas and natural gas liquids (NGL) production increased 19% and 40% year-over-year, respectively. Peyto’s sales and net earnings rose 19% and 11% to $332.5 million and $99.9 million, respectively, compared to Q1 2023. According to management, disciplined hedging and a diversification program protected Peyto’s Q1 revenues from declining natural gas prices.
Market analysts’ 12-month average target for Peyto is $17.85, a 20.4% potential upside.
Healthy leasing momentum
Dream Industrial has been relatively stable despite the weakness of the real estate sector due to the high interest rate environment. The $3.8 billion REIT owns and operates light industrial properties across Canada’s key markets. In Q1 2024, net operating income (NOI) increased 5.4% year-over-year to $85.7 million, while net income reached $74.6 million compared to the $17.7 million net loss in Q1 2023.
Its President and CEO, Alexander Sannikov, credits the healthy leasing momentum for the successful start to 2024. “The organic growth outlook embedded with our portfolio remains intact, and we expect our development program to continue contributing to our NOI and funds from operations (FFO) as we complete and stabilize the projects,” he said.
Gold mine
Peyto and Dream Industrial won’t dent your pocket; instead, grow your TFSA balance faster and turn it into a gold mine.
