Canadians can use the Tax-Free Savings Account (TFSA) to meet short-term financial goals, although it was created primarily for retirement income saving. There are personal stories about financial success through the TFSA. Some users have become millionaires.
A million-dollar TFSA goal is ambitious but possible, even starting with $10,000 as seed capital. However, while money growth is tax-free, a slow-burn investment strategy is the way to build wealth. Your investment horizon must be long-term, with regular, consistent yearly contributions (maximize the annual limits if possible).
There are plenty of investment choices, but most TFSA users prefer to invest in established high-yield dividend stocks. Enbridge (TSX:ENB) and Bank of Nova Scotia (TSX:BNS) are suitable options for risk-averse investors with dreams of retiring a millionaire.
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Dividend giant
Enbridge should fit in any investment portfolio, including the TFSA. The top-tier energy stock is a dividend giant. At $62.14 per share, the dividend offer is a generous 6.13%. Also, the yield or payout has increased yearly in the last 30 years. According to management, the business and cash flows should grow well into the future.
The $134 billion energy company has four core franchises, all value drivers. Its high-quality liquids pipeline network will operate for decades. The Gas Transmission & Midstream segment has over $18 billion growth opportunities.
Enbridge has established its utility footprint (Gas Distribution & Storage) in the U.S. after acquiring three premier natural gas utilities. The renewable power side will capitalize on the ever-growing demand for renewable energy, including $1.5 billion in growth opportunities annually. Meanwhile, the dividend-growth guidance until 2026 is approximately 3%.
Its president and chief executive officer (CEO), Greg Ebel, said, “2024 has been a historic year for Enbridge.” Besides the 19th consecutive year of exceeding its financial guidance, the low-risk business model delivers predictable results and stable shareholder returns. Adjusted earnings increased 5% year over year to $6.04 billion.
More importantly, Ebel assured that impacts from the proposed tariffs on U.S. energy imports won’t be material to Enbridge’s financial performance or guidance. Scale and diversification combined with the current footprint and low-risk business model are competitive advantages. Ebel believes Enbridge is well-positioned for long-term success.
Lengthy dividend track record
BNS is a generous passive-income provider like Enbridge. At $69.66 per share, Canada’s fourth-largest lender pays a hefty 6.16% dividend, the highest in the banking sector. The 193-year dividend track record also lends confidence to invest in this big bank stock.
The $85.8 billion bank forecasts 5% to 7% earnings growth in fiscal 2025 and plans to resume dividend growth and possibly share buybacks. In the first quarter (Q1) of fiscal 2025, revenue increased 11% year over year to $9.4 billion, although provision for credit losses (PCLs) rose 21% to $1.2 billion compared to Q1 fiscal 2024.
Scott Thomson, president and CEO of BNS, said exiting from underperforming markets in Latin America and simplifying the international banking portfolio should generate additional profitability.
A snapshot
The average dividend yield of Enbridge and BNS is 6.145%. A combined $10,000 invested today could compound to $32,960.28 in 20 years. Assuming you contribute yearly after this year, reaching a $1 million TFSA is conceivable.
