Are you one of Canada’s few Tax-Free Savings Account (TFSA) millionaires? If it is the first time you’re hearing about that term, you’re not alone. While people new to investing might think that’s impossible, becoming a millionaire TFSA investor is a realistic possibility. You just have to understand how to use the account to maximize its potential as an investment vehicle.
Those familiar with the TFSA and the contribution limits know that they cannot possibly hold that much in a TFSA. That is technically true. Even if you had $1,000,000 lying around, you cannot simply deposit such a large amount and start collecting tax-free returns from it.
The TFSA millionaires who have crossed that mythic threshold got there using a disciplined investment strategy that grows investments already held in the account. This comes from consistently owning high-quality investments, reinvesting returns, and giving the portfolio an adequate amount of time to grow. This way, your returns can grow the account balance to substantial levels without the risk of overcontributing to your TFSA.
Here are two TSX dividend stocks that can be ideal investments for this purpose.
Source: Getty Images
Canadian National Railway
Canadian National Railway Co. (TSX: CNR) can be an excellent investment to anchor a millionaire-maker TFSA portfolio. CNR is a $105.3 billion market capitalization giant in the North American railway industry. It boasts one of the largest railway networks on the continent, connecting three coastlines across Canada and down through the US. This network is a result of decades of building it up. Such a feat is nearly impossible for any would-be competitor to replicate today. The barrier to entry is simply too high for new players in the game.
The defensive moat it enjoys makes CNR an excellent pick on its own. Besides that factor, the railway is essential to the regional economy, transporting over $250 billion worth of products across its network annually. Supported by solid demand, it has increased payouts to investors for over three decades. As of this writing, it trades for $174.34 per share and pays quarterly distributions of $0.92 per share to investors.
Toronto-Dominion Bank
Toronto-Dominion Bank (TSX: TD) can be another excellent long-term pick for a TFSA. Rather than aiming for explosive growth, steady and stable growth is the name of the game, and TD Bank is a prime example of a stock that can help you do that. The $279 billion market cap company is among Canada’s Big Six Banks, providing personal and commercial banking. It also offers retail banking, wealth management, and wholesale banking, with a growing presence south of the border in the US.
Diversified revenue streams allow TD Bank to offer the kind of dividends that investors can consider generous and manage to be sustainable for the bank while consistently funding its growth and expansion. TD Bank has successfully paid investors quarterly dividends for the last 169 years and looks well-positioned to continue doing so. As of this writing, it trades for $168.83 per share and pays $1.12 per share to investors each quarter.
Foolish takeaway
Identifying individual stocks that fit the bill for reliable long-term investments is crucial to success in any endeavour to become a TFSA millionaire. However, it is just as important to remember the power of diversification to reach your financial goals without unnecessary capital risk. Even the best TSX stocks can see losses due to factors out of everyone’s control. Diversifying your capital across several investments reduces the risk of investing in individual stocks.
Identifying a bunch of high-quality stocks across several industries can be the key to long-term success. To begin building a sizeable long-term portfolio, TD Bank stock and Canadian National Railway stock can be excellent foundational holdings to consider.
