Breaking News
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

TFSA Investors: 2 Stock to Earn Tax-Free Dividends

Stock MarketsJul 23, 2021 17:45
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
TFSA Investors: 2 Stock to Earn Tax-Free Dividends

How much of what you earn goes in the CRA’s pocket? No matter your exact tax rate, your answer would most likely be “a lot.” And it’s true. While taxes in Canada don’t reach the height of taxes in certain European countries, they are certainly in the top tier around the globe.

And even though every citizen understands that taxes are essential, it’s certainly not fun when they are taken out of your hard-earned money.

That’s one of the reasons why tax education is crucial. Not only to help people realize how crucial taxes are to society and how they actually return to the public, but to inform people about deductions and credits. There are numerous ways to minimize your taxable income in Canada, and one of them is to start a tax-free dividend income stream from your Tax-Free Savings Account (TFSA).

There are two stocks you might consider for a tax-free passive income stream.

A senior-care company According to Statistics Canada, seniors (65 years or older) made up about 17.5% of the population. And according to the Canadian Institute of Health Information, the senior population is expected to grow to 10.4 million by 2037. A statistically appropriate number of these seniors dwell in senior-care facilities, making senior housing and care companies like Sienna Senior Living (TSX:SIA) relatively stable businesses.

Sienna stock took a steep dive during the pandemic and fell as low as 53% during its worst valuation. Before the crash, Sienna has been a relatively steady stock. The company is still trading at a 15.7% discount from its pre-pandemic valuation, which is one reason for its juicy 5.7% yield. It’s not a growth stock per se, but thanks to the recovery momentum, the stock has grown over 60% in the last 12 months.

Sienna’s portfolio is divided between two different property types: retirement homes (41%) and long-term care facilities (59%). There are 83 properties in total with an asset value of about $1.6 billion.

As for the dividend income, if you can allocate a sizeable portion of a fully-stocked TFSA to this company (say, $30,000), you can start a passive income of about $1,700 a year. However, you might consider waiting for the payout ratio to stabilize first.

A high-yield financial company Timbercreek Financial (TSX:TF) is a Toronto-based mortgage company that invests in mortgage loans for commercial properties. The company specifically targets income-producing commercial properties in order to ensure the safety of its capital. The company leverages the fact that not all traditional lenders offer loans to commercial ventures, and it’s a “gap” market that Timbercreek serves.

The company is currently offering a mouthwatering 7.1% yield. The payout ratio is a bit high but the company has a history of sustaining dividends at payout ratios higher than 100%. The yield is high enough that if you invest $30,000 in the company, you can have a yearly tax-free payout of $2,130.

While revenues were decimated in 2020, the company has started to turn things around since the first quarter of 2021.

Foolish takeaway A sizeable tax-free income helps you meet more expenses without adding hiking up your tax bill. The impact might be minimal for now, but if you choose the right dividend stocks and keep reinvesting your dividends, your payouts might grow hefty enough (by the time of retirement) to meaningfully add to your retirement income.

The post TFSA Investors: 2 Stock to Earn Tax-Free Dividends appeared first on The Motley Fool Canada.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

This Article Was First Published on The Motley Fool

TFSA Investors: 2 Stock to Earn Tax-Free Dividends
 

Related Articles

2 Top Canadian Banks to Add for Dividend Income
2 Top Canadian Banks to Add for Dividend Income By The Motley Fool - Sep 16, 2021

There are many reasons investors choose Canadian banks as core portfolio holdings. These banks tend to provide extremely stable returns over time. Additionally, most banks provide...

Top 3 Best-Performing TSX Stocks in 2021
Top 3 Best-Performing TSX Stocks in 2021 By The Motley Fool - Sep 16, 2021

This week, the Toronto Stock Exchange (TSX) announced the 2021 TSX30™ – the 30 best-performing stocks of the past three years. Financial institutions, small-cap...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email