The Canada Revenue Agency (CRA) has given you a limit of $7,000 you can invest in the Tax-Free Savings Account (TFSA) in 2024. However, you can increase this limit by reinvesting your earnings from the investment. For instance, if your $7,000 investment earns you a 7% yield of $490. Instead of withdrawing the dividend, you can use it to buy growth stocks. This way, you increase your TFSA investment from $7,000 to $7,490. Remember, the TFSA allows your investment to grow tax-free, which means your dividend income is tax-free.
You could also invest some of the TFSA investment in cyclical or opportunistic stocks to make a short-term gain and reinvest the profits in dividend stocks for the long term. You cannot trade in the TFSA but could make a few transactions, where you buy the stock, hold it for five to six months, and sell it. Your core portfolio should be invested for the long term. You could invest 5-10% of your TFSA money in a satellite portfolio that comprises opportunistic investments.
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Two growth stocks for TFSA’s satellite portfolio
Hive stock
Hive Digital Technologies (TSXV:HIVE) is a cyclical stock that increases 30-50% in an optimistic market and falls on even slightly pessimistic news. You could consider this stock as the barometre of investor confidence as it moves in the extremes of $4 and $7. Behind its extreme volatility is the company’s huge dependence on Bitcoin mining. Its stock price fluctuates according to Bitcoin price as Hive funds most of its operations by selling some of the Bitcoin mined and from the amount it receives for validating transactions.
You could make the most of Hive’s momentum by buying the stock at or below $4 and holding it till the market shows optimism and the stock crosses $6. You can sell it at that price and use the $2 profit to increase your TFSA investments.
Suppose you invested $200 in Hive and sold it for $300. You can reinvest the $100 profit in your core portfolio stock for the long term and reinvest the $200 on another opportunity.
Air Canada stock
Another opportunity stock is Air Canada (TSX: AC). The airline failed to take off from the pandemic levels. The stock has seen resistance at $24. It tends to rise to its seasonal peak during April-July but cannot sustain the price and corrects in a few days.
This resistance comes even after the airline significantly improved its fundamentals and returned to pre-pandemic earnings per share. Behind the resistance is the uncertainty around demand and supply. The recovery was driven by revenge travel and lack of supply. Now, the airlines have ordered new planes and will increase supply in 2025, but there are fears of demand easing. Until the industry finds its new post-pandemic normal where demand and supply stabilize, Air Canada stock could continue to face resistance at $24.
You can use this seasonality of Air Canada, buy the stock while it trades around $16 and sell it at $24. Avoid being greedy, as the stock could fall sharply once it crosses the $24 mark. The profit from this seasonality can be invested in long-term growth or dividend stock.
One dividend stock for TFSA’s core portfolio
You could add Manulife Financial (TSX: MFC) to your core portfolio even though the stocks trade at a multi-year high. The company sells life insurance and wealth solutions globally. The strong demand for insurance in Asian markets more than offset the weakness in American markets and drove the company’s income. The company has sustained the 2008 financial crisis and has been growing its dividend at a compounded annual growth rate of over 10% since 2015.
The stock may not give you capital appreciation. Its high dividend growth is where the real returns lie. You can invest small amounts in this stock’s dividend-reinvestment plan and let your money compound at 10%.
