Become a TFSA Millionaire With Bank of Nova Scotia and Saputo Inc.

Becoming a millionaire isn’t hard. Just max out your TFSA and stuff it full of great stocks such as Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Saputo Inc. (TSX:SAP).

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

The tax-free savings account (TSFA) is a remarkably powerful savings tool that average investors don’t utilize nearly as well as they should.

As it stands right now, anybody who was 18 years of age or older on January 1, 2009, has been able to contribute $46,500 to their TFSA. The contribution limit for most of those years was $5,000, up until 2013 when the government raised the limit to $5,500.

And 2015 was a banner year for Canadian investors, when the ruling Conservative Party temporarily increased the TFSA limit to $10,000. After Prime Minister Justin Trudeau and his Liberal Party wrestled control of Parliament from the Conservatives, 2016’s contribution shrunk back to $5,500, much to the chagrin of Canadian savers.

Even after the decrease, the TFSA is still the savings vehicle of choice for many Canadians. It has many advantages over RRSPs, including the ability to take money out of the account easily, and the assurance that gains will never be taxed. It’s gotten to the point where people use the TFSA exclusively for their retirement savings.

These folks should be in good shape, provided they follow a few rules. All these savers need to do is continue to max out contributions, don’t make any ill-timed withdrawals, and invest in great stocks with a history of outperformance. If they can do those three things, they should be able to retire at age 65 with accounts easily worth more than $1 million.

Which stocks?

As far as I’m concerned, investors should stuff their TFSAs full of “one decision” stocks. These are companies that you buy with the intent of never selling.

Naturally, one of those choices should be one of Canada’s banks. The banking industry continues to dominate, shrugging off concerns like low oil prices and a potential housing bubble.

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is an interesting choice today. Over the last year, compared with its peers, the company has underperformed, posting a small loss of 3.8% per share. Investors are mostly concerned with its exposure to places like Colombia, a region that has been hit hard by oil’s decline.

Underlying results continue to be fine. The company has posted a profit of $5.75 per share over the last 12 months, putting shares at less than 11 times trailing earnings. Loan-loss provisions have been kept in check, and the recent recovery in oil has been good news.

Bank of Nova Scotia pays one of the best dividends in Canada today. The current yield of 4.6% is good, and the dividend growth has been fantastic, averaging nearly 10% per year since the 2008-09 financial crisis.

Saputo Inc. (TSX:SAP) is another company with a history of outperformance. After it dominated the dairy business in Canada, it turned its focus international, making acquisitions in the United States, Argentina, and, most recently, Australia. Other potential targets include further forays into the U.S., Brazil, or New Zealand.

Shares have recovered nicely after a cheese surplus hurt margins during the summer of 2015. Earnings are projected to increase to $1.79 per share for the company’s fiscal 2017, which puts shares at a forward price-to-earnings multiple of 23.1. That’s expensive, but not especially so for a stock with so much growth potential.

Great historical performance

Over the last decade, both Bank of Nova Scotia and Saputo have performed well. If we include reinvested dividends, an investment in each would have increased by 7.99% and 19.64% annually, respectively. Let’s assume both of these stocks can combine for a 8% return going forward to be a little conservative.

If an investor takes the $46,500 of allowable TFSA room and adds $5,500 per year to it, a return of 8% annually would give us a nest egg worth more than $2.5 million in 40 years. Even if we decrease the total return to 6% annually, we still get a final result of nearly $1.4 million in tax-free cash.

Millennial investors really need to start taking advantage of their TFSAs today. It’s that simple.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

5 Dividend Stocks to Buy With Yields Upwards of 5%

These five companies all earn tonnes of cash flow, making them some of the best long-term dividend stocks you can…

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Investors: 3 Stocks to Start Building an Influx of Passive Income

A TFSA is the ideal registered account for passive income, as it doesn't weigh down your tax bill, and any…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

Royal Bank of Canada stock is one of the safest TSX dividend stocks to buy. So is CT REIT and…

Read more »

Growing plant shoots on coins
Dividend Stocks

1 of the Top Canadian Growth Stocks to Buy in February 2023

Many top Canadian growth stocks represent strong underlying businesses, healthy financials, and organic growth opportunities.

Read more »

stock research, analyze data
Dividend Stocks

Wherever the Market Goes, I’m Buying These 3 TSX Stocks

Here are three TSX stocks that could outperform irrespective of the market direction.

Read more »

woman data analyze
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy This Month

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock that long-term investors should consider in this current market.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better TFSA Buy: Enbridge Stock or Bank of Nova Scotia

Enbridge and Bank of Nova Scotia offer high yields for TFSA investors seeking passive income. Is one stock now undervalued?

Read more »

Golden crown on a red velvet background
Dividend Stocks

2 Top Stocks Just Became Canadian Dividend Aristocrats

These two top Canadian Dividend Aristocrats stocks are reliable companies with impressive long-term growth potential.

Read more »