The Tax-Free Savings Account (TFSA) helps Canadians meet immediate or short-term financial needs. However, the TFSA is also a tool for achieving long-term goals like retirement because it has no lifetime limit. Your contribution room is built yearly, and all interest, capital gains, and dividends earned inside the account are tax-exempt.
Since money growth is tax-free, most TFSA users prefer to hold dividend stocks. Your balance compounds faster if you reinvest dividends, whether the payout frequency is quarterly or monthly. Today, Royal Bank of Canada (TSX: RY) and BCE (TSX: BCE) are the perfect TFSA stocks for long-term growth.
Both companies are industry titans that can weather market turbulence. While their stock prices can spike or dip, investors are kept whole on the quarterly dividends. If you don’t cash out the dividends and reinvest them, you can build retirement wealth over time or have a substantial nest egg when you retire.
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Banking heavyweight
Canada’s banking sector is a bedrock of stability, and the name that stands head and shoulders above the Big Six is the Royal Bank of Canada. TSX’s largest company by market capitalization ($240.6 billion) got stronger in April this year after completing the acquisition of HSBC Canada. Following the milestone deal, it also commits to maintaining and expanding its global banking capabilities.
This time last year, the high interest rate environment routed financial stocks. RBC was down 7.9% year to date. But as of November 1, 2024, investors enjoy a 31.89% year-to-date gain. Given the big bank’s resiliency regardless of the market environment, recovery from a downturn is sure.
Its president and chief executive officer (CEO), Dave McKay, said RBC continues to operate from a position of strategic and financial strength. He added that the bank is well-positioned to accelerate the next growth phase and deliver long-term shareholder value. At $170.12 per share, the dividend yield is 3.34%. The 48.98% payout ratio indicates it can sustain its 154-year dividend track record.
Transformation to Techco
TSX’s communications services sector is in a slump (-7.38% year to date) but presents a buying opportunity. BCE, the most dominant industry player, is the top pick before the bounce back. Furthermore, most income-focused investors invest in this $40.88 billion telco giant because of its stable dividends. At $44.81 per share (-8.48% year to date), you can partake in the 8.9% dividend.
In the second quarter (Q2) of 2024, net earnings jumped 52.1% year over year to $604 million amid a competitive landscape. Also, free cash flow increased 8% to $1.1 billion compared to Q2 2023 due to lower capital expenditures. Expect earnings to improve in the quarters ahead as interest expense declines due to the Bank of Canada’s rate-cutting cycle.
BCE said the transformation from a traditional telecommunications company to a technology services and digital media leader is ongoing. In addition to building resilient networks, management embraces automation to offer better products and services while enhancing customer experiences.
Perfect combination
TFSA users can build a rock-solid investment portfolio with RBC and BCE. The combination pays an average 6.12% dividend yield. You minimize market risks and maximize your money’s growth potential with two buy-and-hold stocks. More importantly, you’d receive tax-free, pension-like income in retirement.
