The potential for a recession and rising Tax-Free Savings Account (TFSA) values are the two main issues raised in the latest Bank of Montreal Investment Survey. The poll respondents say 2024 was a generally positive year for investors with TFSAs. Users saw their balances rise because the main asset classes, stocks and bonds, performed well.
Based on the survey results, the mean or average TFSA current account balance rose to $44,987, a record high. The 8% year-over-year increase indicates continued utilization of the TFSA amid a challenging economic environment. However, TFSA contribution estimates by year-end dropped to $6,499 from $6,606 in 2023. The annual limit last year was $7,000.
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Create an income machine
Since all dividends, capital gains, and interest earned inside a TFSA are tax-free, Canadians have an income machine. More importantly, users can save and invest before and after retirement or throughout a lifetime. Many TFSA investors fill their available contribution rooms with dividend stocks for passive income.
To create monthly income streams, consider investing in CT REIT (TSX:CRT.UN) and Extendicare (TSX:EXE). Both stocks pay generous monthly dividends (average 5.8% yield).
Big year ahead
CT REIT was founded in 2013 and today owns high-quality, income-producing commercial properties across Canada. Canadian Tire is the controlling Unitholder and anchor tenant of this $3.34 billion real estate investment.
The long-standing association with one of Canada’s iconic retail companies provides ongoing access to future development opportunities. According to management, the Canadian Tire leases contain contractual rent escalations (around 1.5% per year on average). The weighted average remaining lease term is eight years.
In the first three quarters of 2024 (nine months ending September 30), property revenue and net operating income (NOI) increased 5% and 4.5% year over year to $433.25 million and $327.46 million. Notably, net income climbed 56.3% to $298.88 million from a year ago.
Kevin Salsberg, CT REIT’s president and chief executive officer (CEO), said investors’ interest in the real estate sector has returned following the multiple rate cuts by the Bank of Canada. He expects 2025 to be a big year for the REIT in development completions. If you invest today, the real estate stock trades at $14.14 per share and pays a hefty 6.54% dividend.
Uniquely positioned
Extendicare provides care and services for Canadian seniors. The $846.4 million company operates over 100 facilities across Canada under different brand names (Extendicare, ParaMed, Extendicare Assist, and SGP Partner Network). Its CEO, Dr. Michael Guerriere, said Extendicare is uniquely positioned to capitalize on industry trends.
The continuing objective is to broaden the footprint in Canada to meet the demands of the aging population. Extendicare has built-in insulation from economic cycles because 90% of its revenue comes from government contracts. The less-capital-intensive, high-margin business model is the primary growth catalyst.
Extendicare is a reliable income provider, evidenced by the uninterrupted monthly payouts since February 2013. At $10.14 per share, investors partake in the 5.06% dividend.
Message to TFSA users
BMO’s investment survey results are insightful to TFSA users in all age groups. The message to everyone is that you can create a monthly income machine if you fear a recession in 2025.
