The Tax-Free Savings Account (TFSA) is one of the best places to hold an investment for retirement and beyond. Yet you’re not just picking investments, you’re designing a lifelong wealth engine. The TFSA is one of the most powerful tools available to Canadians because everything inside it grows and pays out tax-free, forever. That means every dividend, every capital gain, and every compounding effect stays yours.
But how do you get started creating that lifetime income? Today, let’s look at what it takes as well as two stocks to consider through retirement and beyond.
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What to watch
The first rule of TFSA investing is stability. You want businesses that can still thrive 10, 20, or even 40 years from now in any market. That means looking for essential industries, recurring revenue, and wide economic moats. This helps support a growing dividend, rather than just a high yielder.
That’s a common TFSA mistake. A 9% dividend looks tempting, but if it’s not sustainable, you’ll lose capital faster than you earn income. Instead, aim for dividend-growth stocks, companies that raise payouts year after year. In particular, ones that have over a decade of dividend increases, payout ratios under 75%, and earnings growth to support more dividends.
Growth is important, even if your focus is on income. TFSA space is limited, so every dollar inside counts. Therefore, consider quality growth stocks with long runways in each sector and solid balance sheets. After all, you want to think beyond retirement. The TFSA can be a legacy tool, so beneficiaries can inherit assets without paying capital gains! Now, let’s look at two stocks to consider.
MDA
MDA (TSX: MDA) isn’t the kind of household name most retirees think of when building long-term portfolios, but it probably should be. This Canadian space-technology leader sits at the intersection of some of the world’s fastest-growing industries, such as satellites and robots, turning that expertise into steady, profitable growth.
The stock designs and builds technology that powers space infrastructure. And it’s doing quite well. During the second quarter earnings, revenue surged 19% year over year, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) up 15%. It also held a record backlog of $3.4 billion, with more than two years of booked revenue!
This led the tech stock to increase its full-year guidance, citing faster-than-expected growth in the satellite systems business. Over time, this is likely to only increase. Space is no longer just exploration; it’s infrastructure. Broadband networks, navigation, climate monitoring, and defence all depend on satellites. MDA builds the hardware and software for all of it — a business model with decades-long visibility.
HPS
Then we have Hammond Power Systems (TSX:HPS.A), an electrical equipment manufacturer. Specifically, it designs, makes, and sells various types of transformers, magnetics, power quality systems, filters, and related electrical products. So, again, essential electrical parts to power the future of tech infrastructure.
In the second quarterly report, earnings came in strong. While revenue was down, the backlog continues to increase. What’s more, it also offers a dividend for investors while they wait for a recovery, currently at $0.275 on a quarterly basis. While not high, it does provide steady supplemental income while the stock continues to rise.
For those thinking about retirement and beyond, the stock offers a solid backlog, geographic diversification and scale, and lots of upside potential for compounding over time. And while shares have come back slightly, this could mean it’s a great time to jump in on the stock long term.
Bottom line
MDA and HPS may not be the first tech stocks you think of when considering long-term retirement income in a TFSA. And granted, these are certainly supporters rather than core investments. That being said, these two stocks could drive immense growth long term. This is especially true when considering decades rather than years of growth and income.
