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4 hours ago
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How to maximise your tax-free savings account for long-term wealth
Discover how to effectively utilise your Tax-Free Savings Account (TFSA) to reduce your tax burden and enhance your long-term financial strategy. Image: Freepik Many South Africans are looking to reduce their tax burden and improve overall tax efficiency, and one of the most effective tools available is the Tax-Free Savings Account (TFSA). With an annual contribution limit of R36,000 and no tax on interest, dividends, or capital gains, the TFSA offers significant long-term benefits – although it's important to ensure that you align your TFSA with your broader investment strategy. Here's how to get the most from your tax-free savings. Use your tax-free allowance wisely: The TFSA has become a key component of long-term financial planning because all income and growth earned within the structure, including interest, dividends, and capital gains, are tax-free. Note, however, that contributions are made with after-tax income, and no tax deduction is available on contributions such as in the case of retirement fund contributions. While it, therefore, makes sense to first maximise your retirement fund contributions, the TFSA remains an exceptional long-term investment vehicle. Think long-term from the start: The tax benefit in the early years of a TFSA is fairly small, with the compounding tax savings only becoming meaningful after about a decade. With this in mind, a TFSA is best suited to long-term investing and is not ideal for an emergency fund. It can, however, be used to supplement retirement savings or to meet other long-term goals, such as funding a child's tertiary education. Structure your contributions to suit your cash flow: Legislation permits annual TFSA contributions of up to R36,000 with a lifetime limit of R500,000, with most providers allowing flexible contribution options for investors depending on their personal circumstances. For instance, if your income is variable, you can set up a modest debit order and top it up when additional income becomes available, thereby allowing you to consistently build wealth without placing strain on your budget. Understand the implications of withdrawals: While it is possible to withdraw from your TFSA at any time, it's important to understand the consequences because withdrawals can reduce your lifetime contribution capacity. For example, if you've contributed R300,000 towards your TFSA and withdraw R50,000, you may only contribute another R200,000 in the future, regardless of whether you replace the R50,000 later. Importantly, withdrawals not only reduce your tax-free limit but can also interrupt the compounding growth within the investment. Match your investment to your time horizon: When selecting the underlying investment for your TFSA, consider how long you intend to stay invested. If you're investing for your child's education 15 to 20 years from now, or to supplement retirement income, your investment horizon may be long enough to justify growth assets. Having said that, it's important to balance return expectations with your risk tolerance. Also, remember that individuals under 65 already enjoy a tax exemption of R23,800 per year on interest earned (R34,500 if over 65), so using your TFSA to invest in low-yielding interest-bearing assets might not be the most efficient use of your tax-free allowance. Choose an efficient investment platform: There are numerous TFSA providers in South Africa, ranging from banks to investment platforms. While fixed-term accounts and money market funds are available, those with a long investment horizon should consider a more aggressive unit trust portfolio to harness better growth over time. Ideally, select a platform that provides consolidated reporting across your retirement and discretionary investments, so that your TFSA integrates seamlessly into your overall strategy. Avoid over-contributions and penalties: It's important to ensure that you stay within your R36,000 annual limit, as any contributions above this will attract a penalty tax of 40% from Sars, regardless of your personal income tax bracket. If you have more than one TFSA, be sure to track contributions carefully to avoid exceeding the threshold and incurring avoidable penalties. Stay compliant with Sars: Even though no tax is payable within a TFSA, you are still required to disclose the investment on your tax return. Your provider will issue a tax certificate, and it's important to include all TFSA-related information when filing with Sars. Maintaining transparency ensures compliance and helps avoid any administrative issues. A TFSA can be a powerful tool for building long-term wealth, provided it is used strategically, managed consistently, and integrated into your broader financial plan. * Odendaal is an associate financial planner at Crue Invest. PERSONAL FINANCE
Yahoo
4 days ago
- Business
- Yahoo
How to Use $10,000 to Transform a TFSA Into a Cash-Pumping Portfolio
Written by Amy Legate-Wolfe at The Motley Fool Canada Turning a Tax-Free Savings Account (TFSA) into a reliable income stream is a goal many Canadians share. With $10,000 to invest, selecting the right asset can make all the difference. One compelling option is CT Real Estate Investment Trust (TSX: a dividend stock that has consistently delivered stable returns and growing distributions. CT REIT primarily owns and manages a portfolio of retail properties across Canada, with a significant portion leased to Canadian Tire. This relationship provides a dependable tenant base, contributing to the REIT's consistent performance. As of March 31, 2025, CT REIT reported a net income of $105.7 million for the first quarter, marking a 4.5% increase compared to the same period in the previous year. The net operating income also rose by 4.6% to $118.7 million, reflecting the trust's ability to generate steady cash flows. Investing $10,000 in CT REIT could provide a monthly income stream, thanks to its regular distributions. In May 2025, the REIT announced a 2.5% increase in its monthly distribution, bringing it to $0.07903 per unit, or approximately $0.94836 annually. This marks the 12th consecutive annual increase since its initial public offering in 2013, highlighting a commitment to rewarding unit holders. So here's what that looks like for today's investor for dividends alone. COMPANY RECENT PRICE NUMBER OF SHARES DIVIDEND TOTAL PAYOUT FREQUENCY INVESTMENT TOTAL $15.44 647 $0.9252 $599.63 Monthly $9,993.68 The big question is whether the dividend stock can keep it going. The answer, in short, looks like a trust's occupancy rate remains high, standing at 99.4% as of the end of the first quarter of 2025. This indicates strong demand for its properties and efficient management. Additionally, the adjusted funds from operations (AFFO) per unit increased by 3.9% to $0.320, demonstrating the REIT's capacity to support and grow its distributions. CT REIT's financial stability is further underscored by its AFFO payout ratio of 72.2%, slightly improved from the previous year's 73.1%. This conservative payout ratio suggests that the REIT retains sufficient earnings to reinvest in its portfolio and weather potential economic downturns. The trust's portfolio comprises over 375 properties, totalling more than 31 million square feet of gross leasable area. This extensive and diversified asset base reduces risk and enhances income stability. From a valuation perspective, CT REIT's units are trading at a price that some analysts consider attractive. As of writing, the units were priced at approximately $16, with a market capitalization of around $3.9 billion. The REIT's price-to-earnings ratio stands at 10.5, and it offers a dividend yield of about 6 %, making it a potentially appealing option for income-focused investors. Incorporating CT REIT into a TFSA allows investors to benefit from tax-free income and capital gains. This means that the monthly distributions and any appreciation in unit value are not subject to Canadian income tax, enhancing the overall return on investment. Moreover, the dividend stock's conservative debt management, with an indebtedness ratio of 40.3%, provides additional financial flexibility. This prudent approach to leverage supports the REIT's ability to maintain and potentially increase distributions over time. In summary, allocating $10,000 to CT REIT within a TFSA could be a strategic move for investors seeking a steady and growing income stream. The trust's strong financial performance, consistent distribution increases, high occupancy rates, and conservative financial management make it a noteworthy candidate for a cash-generating portfolio. The post How to Use $10,000 to Transform a TFSA Into a Cash-Pumping Portfolio appeared first on The Motley Fool Canada. Before you buy stock in Ct Real Estate Investment Trust, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Ct Real Estate Investment Trust wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $21,345.77!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*. See the Top Stocks * Returns as of 4/21/25 More reading Made in Canada: 5 Homegrown Stocks Ready for the 'Buy Local' Revolution [PREMIUM PICKS] Market Volatility Toolkit Best Canadian Stocks to Buy in 2025 Beginner Investors: 4 Top Canadian Stocks to Buy for 2025 5 Years From Now, You'll Probably Wish You Grabbed These Stocks Subscribe to Motley Fool Canada on YouTube Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
- Business
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A $7,000 TFSA Strategy That Focuses on Dividend Growth
Written by Andrew Walker at The Motley Fool Canada Retirees and other dividend investors are searching for ways to get better returns on savings held inside a self-directed Tax-Free Savings Account (TFSA). One popular investing strategy involves buying good dividend-growth stocks that can provide income and boost long-term gains. The TFSA limit in 2025 is $7,000. All interest, dividends, and capital gains generated inside a TFSA on qualifying investments are tax-free. This means the full value of the earnings can go right into your pocket without having to share some with the CRA. The gains can also be fully reinvested, if passive income isn't the core goal. Retirees who receive Old Age Security (OAS) get another benefit. The CRA does not count TFSA income when calculating net world income used to determine the Old Age Security (OAS) pension recovery tax. This is important for seniors with high incomes. Every dollar of net world income earned above a minimum threshold triggers a $0.15 pension recovery tax. The number to watch in the 2025 tax year is $93,454. As such, retirees should consider fully using TFSA contribution space before holding income-generating investments inside taxable accounts. Younger investors can use dividend stocks to build retirement savings inside a TFSA. One strategy involves owning dividend-growth stocks and reinvesting the distributions in new shares. This sets off a powerful compounding process that can turn modest initial investments into meaningful savings over time, especially when dividends increase and the share price drifts higher. Fortis (TSX:FTS) is a good example of a stock with a great track record of dividend growth. The company has raised the payout in each of the past 51 years. Fortis operates utility businesses in Canada, the United States, and the Caribbean. The company has $75 billion in assets, including natural gas utilities, power generation facilities, and electric transmission networks. Nearly all of the revenue comes from rate-regulated businesses. This means cash flow is normally predictable and reliable. Fortis is working on a $26 billion capital program that will raise the rate base from $39 billion in 2024 to $53 billion in 2029. Revenue and earnings growth from the new assets should support planned annual dividend increases of 4% to 6% over the next five years. New projects are under consideration that could get added to the backlog. This would potentially extend the dividend-growth guidance or boost the size of the increases. Fortis has a dividend reinvestment plan that gives investors a 2% discount on stock purchased using dividend distributions. On the risk side, Fortis is sensitive to changes in interest rates due to the large amount of debt it uses to fund part of the capital program. The stock fell when the central banks in Canada and the United States raised rates in 2022. Rate cuts last year spurred the rebound. Analysts broadly expect interest rates to continue to decline later this year, as long as there isn't a spike in inflation caused by tariffs. Buying Fortis on pullbacks has historically proven to be a savvy move for patient investors. The TSX is home to many good dividend-growth stocks that investors can own to generate income and long-term total returns inside a self-directed TFSA. Fortis still deserves to be on your radar, even after the nice rally in the past year. The post A $7,000 TFSA Strategy That Focuses on Dividend Growth appeared first on The Motley Fool Canada. Before you buy stock in Fortis, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $21,345.77!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*. See the Top Stocks * Returns as of 4/21/25 More reading Made in Canada: 5 Homegrown Stocks Ready for the 'Buy Local' Revolution [PREMIUM PICKS] Market Volatility Toolkit Best Canadian Stocks to Buy in 2025 Beginner Investors: 4 Top Canadian Stocks to Buy for 2025 5 Years From Now, You'll Probably Wish You Grabbed These Stocks Subscribe to Motley Fool Canada on YouTube The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned. 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
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Why Putting $7,000 in These Renewable Energy Stocks Makes Sense Now
Written by Jitendra Parashar at The Motley Fool Canada Whether you're looking to put your annual Tax-Free Savings Account (TFSA) contribution of $7,000 to good use or simply seeking a timely investment opportunity, renewable energy stocks could be worth considering in 2025. While the renewable energy sector enjoyed its time in the spotlight a few years back, things have since cooled down a bit. But that's exactly when Foolish Investors should start paying attention. What looked too expensive a few years ago is now trading at levels that could offer long-term value, especially if you believe the world isn't turning away from clean power anytime soon. In this article, I'll highlight two top dividend-paying renewable energy stocks and tell you why buying them right now could be a smart move for patient investors. The first renewable energy stock you may want to consider right now is Brookfield Renewable Partners (TSX: The company runs one of the world's largest publicly traded renewable power platforms, including hydro, wind, solar, and storage facilities spread across several continents. The stock is currently trading at $32.56 per share with a market cap of $9.3 billion and offers quarterly dividends with a generous 6.3% annualized dividend yield. Brookfield Renewable stock has had a rough year, dropping about 15% over the past 12 months. But here's why that might actually work in your favour. The company posted a record quarter (three months ended in March 2025) with US$315 million in funds from operations, up 7% from a year ago. Its development pipeline has also grown stronger as it added 800 megawatts of new capacity in the recent quarter, with more expected later this year. Also, Brookfield Renewable has been busy acquiring growth platforms like Neoen and National Grid Renewables, expanding its clean energy footprint in key geographic markets. With 90% of its portfolio under long-term contracts and about 70% of revenues linked to inflation, its setup is ideal for patient investors who want reliable dividends with long-term upside. Another top renewable energy stock worth looking at is Northland Power (TSX:NPI). This Toronto-based firm generates electricity through a mix of offshore and onshore wind, natural gas, and battery storage projects. NPI stock is currently trading at $20.77 per share with a market cap of $5.4 billion and an annualized dividend yield of 5.8%, paid out monthly. While the stock is still down nearly 15% over the past year, it has made a solid comeback recently with gains of over 13% in the last month alone. Northland just achieved a big milestone by bringing Canada's largest battery project, the 250-megawatt Oneida facility, into commercial operation. And more importantly, it did so ahead of schedule and under budget. That kind of project execution adds to its credibility. Meanwhile, construction is also progressing steadily at its Hai Long and Baltic Power offshore wind farms, which are expected to start generating revenue over the next couple of years. With more than 10 gigawatts of potential capacity in development and growing global demand for clean energy, long-term investors may find this renewable power stock attractive. The post Why Putting $7,000 in These Renewable Energy Stocks Makes Sense Now appeared first on The Motley Fool Canada. Before you buy stock in Brookfield Renewable Partners, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Brookfield Renewable Partners wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $21,345.77!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*. See the Top Stocks * Returns as of 4/21/25 More reading Made in Canada: 5 Homegrown Stocks Ready for the 'Buy Local' Revolution [PREMIUM PICKS] Market Volatility Toolkit Best Canadian Stocks to Buy in 2025 Beginner Investors: 4 Top Canadian Stocks to Buy for 2025 5 Years From Now, You'll Probably Wish You Grabbed These Stocks Subscribe to Motley Fool Canada on YouTube Fool contributor Jitendra Parashar has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy. 2025
Yahoo
5 days ago
- Business
- Yahoo
Is Fortis Stock a Buy Now?
Written by Andrew Walker at The Motley Fool Canada Fortis (TSX:FTS) is up nearly 18% in the past year. Investors who missed the rally are wondering if FTS stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns. Fortis trades near $65.50 at the time of writing. The stock has been on an upward trend for most of the past 12 months, spurred by cuts to interest rates in Canada and the United States. The rebound occurred after the stock had fallen from near $65 in the spring of 2022 to as low as $50 in October that year as the central banks ramped up rate hikes to cool off a hot economy and get inflation under control. Utility companies use a lot of debt to fund large capital projects that can cost billions of dollars and take years to complete. As such, they are sensitive to changes in interest rates. Higher rates drive up borrowing expenses, which puts pressure on profits and can reduce cash available for distribution to shareholders. Elevated debt costs can also force companies to shelve some projects. The U.S. Federal Reserve and the Bank of Canada cut rates over the past year, but are currently on hold as they wait to see how tariffs will impact the economy and inflation. If inflation jumps in the coming months, the central banks will have a tough time justifying additional rate cuts. In fact, rate hikes might be needed. In that scenario, Fortis could face new headwinds. That being said, analysts widely expect economic weakness to push the central banks to cut rates again before the end of the year, even if inflation drifts higher. Falling rates would be positive for Fortis and other utility stocks. Fortis is working on a $26 billion capital program that will raise the rate base from $39 billion in 2024 to $53 billion in 2029. As the new assets are completed and go into service, Fortis expects earnings to rise enough to support annual dividend increases of 4% to 6% over the five years. Fortis raised the dividend in each of the past 51 years, so investors should feel comfortable with the guidance. At the time of writing, the stock provides a dividend yield of 3.8%. Management has other projects under consideration that could get added to the development plan. Fortis also has a strong track record of making strategic acquisitions. Falling interest rates could spur a wave of consolidation in the utility sector. Near-term volatility should be expected until there is more clarity on a trade agreement between Canada and the United States, as well as between the U.S. and its other major trading partners. Fortis is down, however, from the recent high around $69, so investors now have a chance to buy the stock on a nice dip. Acquiring FTS stock on pullbacks has historically proven to be a savvy move for patient investors focused on passive income and long-term capital gains. The post Is Fortis Stock a Buy Now? appeared first on The Motley Fool Canada. Before you buy stock in Fortis, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $21,345.77!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*. See the Top Stocks * Returns as of 4/21/25 More reading Made in Canada: 5 Homegrown Stocks Ready for the 'Buy Local' Revolution [PREMIUM PICKS] Market Volatility Toolkit Best Canadian Stocks to Buy in 2025 Beginner Investors: 4 Top Canadian Stocks to Buy for 2025 5 Years From Now, You'll Probably Wish You Grabbed These Stocks Subscribe to Motley Fool Canada on YouTube Fool contributor Andrew Walker has no position in any stock mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy. 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
