Canadians are turning to their Tax-Free Savings Accounts (TFSAs) to build retirement wealth. One strategy involves purchasing top dividend stocks on the Toronto Stock Exchange (TSX) and utilizing the distributions to acquire additional shares. Each time a dividend payment buys new shares, the next payout becomes larger.
This allows for the purchase of even more shares. The impact on the size of the holding can become substantial over 20 or 30 years, especially when dividends grow and share prices increase. Companies often favor when investors use dividends to buy new shares.
It keeps cash within the business to fund projects or reduce debt. Many firms offer a discount on the price of the stock purchased using the distributions, typically 2% to 5%. Fortis Inc.
Dividend growth in TFSAs
is a Canadian utility company with $75 billion in assets across Canada, the United States, and the Caribbean. Its operations include power generation, electricity transmission, and natural gas distribution.
The company’s revenue is primarily rate-regulated, meaning cash flow tends to be predictable and reliable. Fortis is currently engaged in a $26 billion capital program. It is set to increase its rate base from $39 billion in 2024 to $53 billion in 2029.
As new assets begin generating revenue, the boost to earnings is expected to support planned annual dividend increases of 4% to 6% over the next five years. Fortis has additional projects under consideration that may also receive approval. By strategically selecting dividend stocks and utilizing a dividend reinvestment plan (DRIP), Canadians can transform modest initial TFSA investments into a substantial retirement safety net.
However, it is essential to consult with a financial advisor to discuss your specific financial situation before making any investment decisions.