Canadians can save, invest, and not pay taxes on investment income through the Tax-Free Savings Account (TFSA). Tax-free money growth is the salient feature of this well-loved investment tool. Some TFSA users became millionaires, although they might have employed high-risk strategies to achieve the feat.
However, risk-averse investors can take a more cautioned approach and still see a $15,000 investment grow 1,333% to $200,000 over time. Also, now is a good time to utilize your TFSA. On January 29, 2025, the Bank of Canada announced a 0.25% reduction in its policy interest rate to 3%, the sixth cut since June 2024.
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Eligible investments
Non-bank lenders like Timbercreek Financial (TSX:TF) and Atrium Mortgage Investment Corporation (TSX:AI) benefit from the central bank’s rate-cutting cycle. Moreover, you won’t spend more than $20 per share to own both stocks and partake in their generous dividends. The average yield is 9.075%.
Assuming your available TFSA contribution room in 2025 is $15,000, and you invest $7,500 in each stock, your money will reach $203,164.54 in 30 years, including dividend reinvesting. The time frame could be shorter, and the balance could grow further by maximizing your contribution limits in the ensuing years.
Conservative lending program
Timbercreek Financial provides shorter-duration structured financing solutions (fewer than five years) to commercial real estate investors. The lending program of this $563.63 million non-bank lender is conservative. It lends against income-producing real estate to ensure problem-free servicing of the loan and a low incidence of default.
In the first three quarters of 2024, net and comprehensive income declined 14.89% year over year to $43.78 million. However, the improving real estate fundamentals due to receding inflation and interest rates is a tailwind and would enable Timbercreek to redeploy capital in compelling, low-risk investments.
“We are well positioned to deploy capital in this environment and expand the portfolio back to or above historical levels,” said its chief executive officer, Blair Tamblyn. At only $6.89 per share, Timbercreek pays a hefty 10.16% dividend and a monthly payout.
Tamblyn added, “In a decreasing rate environment, our monthly dividend provides shareholders with an increasing spread versus instruments such as high-interest savings accounts and GICs [Guaranteed Investment Certificates].”
Disciplined underwriting
Atrium, a $507 million mortgage investment corporation, or MIC, provides creative financing solutions to clients in the major urban centres of Western Canada and Ontario. The focus is on commercial real estate and development communities. Like Timbercreek, AI is a monthly income stock. As of this writing, the share price is $10.96, while the dividend offer is 7.99%.
Management maintains disciplined underwriting and a low-risk portfolio. About 97.3% of the total portfolio are first mortgages, while the loan-to-value of 90.3% is 64.1%. In the third quarter (Q3) of 2024, net income increased 5.58% to $11.6 million compared to Q3 2023.
Besides the regular monthly dividends, Atrium has declared special dividends every year since 2019. the MIC said the special dividend for fiscal 2024 will be payable in Q1 2025.
Full potential
The TFSA is a one-of-a-kind investment vehicle. Many Canadians have yet to utilize its full potential. If your finances allow, contribute to your TFSA or max out the limits. The result should be long-term wealth and a comfortable retirement.
