There are plenty of ways to set up your TFSA (Tax-Free Savings Account) for success. For young investors, it’s a wise idea to put TFSA contributions into high-quality blue-chip names that have the ability to grow at a steady and predictable pace over the span of many years.
Indeed, dividends may be nice to have for these younger investors, especially those who are still climbing the lower rungs of the career ladder. In any case, dividend growth and appreciation potential (capital gains upside) may wish to be prioritized for these types of investors who can handle volatility that we’ll surely be dealt with in the coming year or so, with Trump tariffs and a threat of a potential economic recession.
Either way, if you don’t need passive income, it may be best to position your TFSA with dividend growth and gain potential in mind. That said, if you’re someone who could use a bit of tax-free passive income, it can make sense to position funds within some higher-yielding securities. In this piece, we’ll look at a few income-generating ideas for investors looking to level up their TFSA’s income-producing capacity.
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Telecom stocks have mega-sized yields, but mind the risks
Telecom stocks have been absolutely clobbered in recent years. This past week has kicked them even further into the abyss, with names like BCE (TSX: BCE) right back to fresh multi-year depths. Indeed, just when you thought shares were starting to turn a corner for the new year, shares proceeded to plunge further. With BCE shares down a horrifying 8% in the past week, it’s hard not to think about bailing out on the name.
The yield is closing in on 12%. And at this pace, a dividend cut will be tough to avoid as the Canadian wireless market faces further headwinds. After the latest free-fall, I prefer a name like Telus (TSX: T), which has a nice 7.7% yield to get behind. It’s a safer payout, and with plans to buy out around 700 employees, the firm is looking to get leaner, perhaps shoring up cash to cover future dividend growth and infrastructure bets to gain on pressured rivals like BCE.
The telecom scene is under pressure, but where there’s pain, there’s potential for gain.
Don’t sleep on the REITs, especially as interest rates have further to fall
Real estate investment trusts (REITs) can be a magnificent pick for TFSA income portfolios, especially after their recent plunge into bear market territory. If the Bank of Canada cuts rates further, I think the REITs could rise, and the yields could begin to slip a bit. Today, CT REIT (TSX: CRT.UN) looks like a great pick, with a steady 6.34% distribution yield and one of the best retail tenants in the country. Sure, the REITs have been a rough ride of late, but I think the tides are turning in their favour.
So, if you don’t want to settle for a falling (3% or so) rate on a Guaranteed Investment Certificate (GIC) over a one- or two-year term, perhaps exploring the yield scene is more than worthwhile. With a name like CRT.UN, you’re getting twice the yield and perhaps some upside if Canada’s economy fares better than expected this year.
