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2014 TFSA Showdown

I was talking with a friend the other night and they ran through a list of options they came up for their retirement savings. Not once did they mention a TFSA in there list and when I brought it to their attention, they said “You can do that with a TFSA!?”

Even though the TFSA has only been around a short while, it has become my investment vehicle of choice. Why wouldn’t you maximize the only legit, feasible way to generate income in Canada without paying tax; short of becoming a drug dealer or a legalized criminal in the House of Commons. RRSPs are ok, in fact if that’s what you like to invest with thats perfectly fine. For me RRSPs just aren’t ideal because no matter how good it seems to not pay taxes now, you WILL pay those taxes back eventually.

 Hooray for Dividends!

I like dividends… a lot. I know I should have more diversity with my investments but dividend stocks fit my tolerance level and my style to a tee. I don’t want to work forever, so creating a monthly income using dividends is my ticket to financial freedom. By using my TFSA to generate a tax-free income, it allows me reach my goal even sooner.

Since I’m putting more emphasis on my TFSA for my financial freedom goal, I tend to spend more time and energy choosing the right stocks I put in there. I only want quality stocks that will perform with a growing dividend now, as well as down the road in my retirement. I’m sure I will have to make some changes over that time, but for the most part I’m looking for stocks to hold long term. I will not care about fluctuating markets; in fact I hope they do so I can buy more shares at a good price. I will care only for the growing dividends that they pay out. What kind of an investor hopes for fluctuating markets you ask? A Loonie Bin of course!

 Criteria For My TFSA

As I mentioned before, I have a few simple metrics that I look for in a dividend stock:
  • Dividend Yield between 3-5%
  • At least 10 years of consecutive dividend increases
  • Ideally 5% average yearly dividend growth
  • A dividend payout ratio lower than 75% (higher for pipelines and utilities)
  • Solid Business Model
I know if I was running a tight ship and was only following these metrics, I would have very few stocks to choose from. That’s why they are only metrics I look for in a stock. Not all the stocks I look at were able to increase their dividend during the financial crises either but still, I’m looking for those that at least maintained and resumed increasing it. So far I’ve come up with the following:


No Earth shattering news over here. No secret stock you have never heard of before. I’m looking for somewhat of a sure bet with stocks that increase their dividend as well as share price over time. I’ll never be in Money Sense’s TFSA Champion articles but I won’t be far behind them. I was only a few thousand short of the lowest amount in that article so I know I must be doing something right!

Timing is everything?

Now that I have my list of stocks, the real “fun” part is knowing when to pull the trigger. There are a few stocks on my list that can be bought at any time like TD or ENB. Ideally you want to buy as low as possible, but sometimes that doesn’t work out. You could hesitate when a stock price jumps up one day to only watch it keep growing and growing beyond your price range completely.

That’s why when I find a good stock at a good price, AND I have the funds I usually shoot first and ask questions later. Perhaps not the wisest way to invest, but it helps me move in a direction without hesitation. Really, I’m buying quality stock for the long term so as long as I’m happy with the yield, timing is less important.

So that’s my outlook on my TFSA for 2014. I’ll keep you updated on any buys I make in future posts. Slowly but surely my TFSA will grow and the dividend income I receive will keep up with and out-perform inflation…hopefully :)

Care to share your 2014 TFSA picks?

This article was written by The Loonie Bin. If you enjoyed this article, please consider subscribing to his feed.