Investing even a modest amount like $2,000 into a Tax-Free Savings Account (TFSA) can be incredibly useful in setting up long-term financial growth. A TFSA offers the unique benefit of tax-free growth. So any interest, dividends, or capital gains earned within the account are not subject to taxation. Over time, this compounding effect, free from the burden of taxes, can significantly enhance the returns on your investments.
For someone just starting or adding to their TFSA portfolio, allocating $1,000 each toward two solid, dividend-paying TSX stocks could be a smart move. Especially when considering these two.
TD stock
The Toronto-Dominion Bank (TSX:TD) is one of Canada’s largest financial institutions, with a market capitalization of $137.2 billion at writing. Its recent stock performance reflects some challenges in the financial sector, such as a 52-week drop of 4%. However, the TFSA stock’s recent earnings have shown resilience. For the quarter ending July 31, 2024, TD stock reported quarterly revenue growth of 7.9% year-over-year, with revenue totalling $52.3 billion over the trailing 12 months. The bank continues to offer a reliable dividend yield of 5.2%, paying an annual dividend of $4.08 per share.
Still, TD stock has faced some challenges, such as increased scrutiny from regulators and market volatility, especially after announcing it would need to pay US$3 billion in penalties for anti-money laundering. Even still, its strong fundamentals, including a return on equity of 7.3%, demonstrate its ability to generate consistent profits. Its price-to-earnings ratio of 18.2 suggests that it remains a reasonably valued stock, with solid long-term growth potential. Investors looking for stability and income might find the TFSA stock an excellent addition to their portfolio.
NorthWest stock
On the other hand, NorthWest Healthcare Properties REIT (TSX:NWH.UN) operates in the real estate sector, specifically in healthcare properties. This adds an element of defensive growth to a portfolio. The TFSA stock has a more modest market cap of $1.3 billion but offers a high dividend yield of 6.9%, making it an attractive choice for income-focused investors. Despite facing some financial difficulties, including a trailing annual dividend payout ratio of 299.4%, its management remains committed to maintaining its dividend.
In its most recent quarter ending June 30, 2024, NWH.UN showed some encouraging signs, with quarterly revenue growth of 11.1% year-over-year. However, the company has also posted a net income loss of $394.4 million over the trailing 12 months, reflecting challenges in the real estate market. Despite these hurdles, NorthWest continues to generate solid cash flow, with $81.8 million in operating cash flow and $137.9 million in levered free cash flow, giving it a cushion to sustain its dividend payouts.
A dividend deal
For those interested in dividend income, both TD and NWH.UN provide regular payments, which can be reinvested for further growth within a TFSA. The benefit of holding dividend stocks like these within a TFSA is the tax-free nature of the dividends, allowing investors to grow their income without any tax implications. This tax-free compounding, especially when starting with even $2,000, can turn small investments into substantial long-term returns.
Plus, both TD stock and NorthWest stock are accessible to most investors and offer diversification. TD Bank provides exposure to the financial sector, which tends to perform well over time, especially as economic conditions stabilize. Meanwhile, NWH.UN provides exposure to the real estate and healthcare sectors, which are known for their stability, even during economic downturns.
