Retirement may seem so far away, especially when you’re contemplating skipping on planned monthly savings. However, it’s advisable to always consider your future self while attending to today’s “needs”. And it’s never too early to start planning for a smooth carefree transition into your golden years.
Since 2009, one of the best ways to build wealth tax-efficiently in Canada is through a Tax-Free Savings Account (TFSA). The TFSA offers a perfect mix of flexibility and tax-free growth, allowing you to invest smartly to maximize returns.
If you dream of a peaceful retirement without financial stress, then it’s time to make your TFSA work harder for you – especially with the right dividend-paying TFSA stocks. One example of a fantastic and solid investment option for your TFSA is Granite Real Estate Investment Trust (TSX:GRT.UN), a high-quality real estate investment trust (REIT) with solid growth potential and consistent income.
Here’s how you can make the most of your TFSA and why dividend-paying stocks similar to Granite REIT are a perfect match for your retirement strategy.
Why your TFSA is a retirement game changer
The TFSA is one of Canada’s most powerful tools for anyone self-engineering their financial freedom. Each year you are allowed to contribute a certain amount ($7,000 for 2024) into your TFSA, and any interest, dividends, or capital gains earned within the tax-advantaged account are entirely tax-free – forever.
You can grow your wealth faster because the government doesn’t take a cut from your profits and gains – unlike in any other retirement savings accounts whose withdrawals are taxed as income. Moreover, TFSA withdrawals can be added back to your contribution room the following year, giving you endless flexibility.
The cumulative TFSA contribution room, for individuals who turned 18 in 2009, may grow from $95,000 in 2024 to $102,000 in 2025.
The real magic happens when you fill your TFSA with high-quality, dividend-paying stocks, and the benefit is even greater for stocks whose dividends aren’t eligible for tax credits – like REITs and income trusts.
Dividend stocks, REITs, and income trusts: The gift that keeps on giving
Canadian dividend stocks, REITs, and income trusts are like the golden ticket to a stress-free retirement. Why? Because they provide a steady stream of income, which can be reinvested or used to cover living expenses in retirement.
Companies that pay dividends usually tend to be financially stable and generate consistent distributable cash flows. Investing in them within a TFSA allows you to receive those dividend payments without paying taxes. That’s pure, untaxed income that can help cover your retirement lifestyle.
Most noteworthy, income from REITs and income trusts (and basically any TSX stock with a ticker that ends with a .UN) do not qualify for Canadian dividend tax credits, and may thus be taxed as ordinary income. The TFSA provides tax shelter for such income streams – improving tax efficiency for your overall retirement portfolio.
One top pick to consider for your TFSA portfolio is Granite REIT.
Granite REIT: A perfect fit for your TFSA
The Granite REIT focuses on industrial properties across North America and Europe, offering investors exposure to a diverse portfolio of warehouses and logistics centres – sectors that have seen significant growth in an e-commerce-driven economy. Its portfolio of 143 properties represents 63.3 million square feet of gross leasable area, and the trust is the major landlord to Canadian motor-vehicles contractor Magna International.
The REIT has been experiencing strong revenue growth lately as it renewed leases at higher rates. Lease spreads were as high as 25% during the second quarter and Granite REIT reported respectable 6% year-over-year growth in same property net operating income for the quarter. The trust’s monthly distributions are increasingly well covered given an adjusted funds from operations (AFFO) payout rate of 69% during the first half of 2024, which makes Granite REIT’s distributions some of the safest in the Canadian REIT asset class.
Granite REIT has raised its monthly distributions for 13 consecutive years now. The dividend aristocrat could pay you increased passive income streams each month in retirement.
The trust retains strong portfolio occupancy rates of 94.5% and boasts of a strong balance sheet that employs low leverage at 32% of assets. Investors could receive steady and growing monthly distributions from Granite REIT for many years to come, helping them drift smoothly into a serene retirement.
