TFSA Investors: Pay $0 Taxes on Investment Gains in 2020

The new TFSA contribution limit in 2020 is $6,000. Investors can once more realize a tax-free financial bonanza from generous dividend-payers like the H&R REIT stock and the CIBC stock.

| More on:
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT

Image source: Getty Images

Every year since 2009, the Tax-Free Savings Account (TFSA) brings financial windfall to account holders. If you’re an investor, you should be taking advantage of the wonders of the TFSA. For 2020, the contribution space is $6,000 and customary you can again avoid paying tax on any investment gains.

The novelty of the TFSA is one of a kind. You can withdraw cash as needed, and you don’t need to pay a tax penalty whatsoever. Furthermore, the TFSA contribution room accumulates even if you don’t contribute in a year. The unused contribution room carries over to the next year.

Instant windfall

Among the eligible investments that are generally placed in a TFSA are dividend stocks. Many investors prefer dividend investing because you can grow balances faster.

A diversified real estate investment trust (REIT) like H&R (TSX:HR.UN), for example, pays a hefty dividend of 6.44%. This real estate stock will reward your $6,000 contribution with a $386.40 tax-free windfall.

Assuming your available room is $50,000, the tax-free gains amount to $3,220.

H&R’s portfolio consists of high-quality office, retail, multi-family or residential, and industrial properties. The worth of the properties that has a total of 41 million square feet of leasable space is about $14.4 billion.

The market capitalization of H&R is currently a massive $6.1 billion. This REIT generates stable rental payments because of the long-term leasing contracts with credit-worthy tenants. Also, the said contracts have built-in escalation clauses.

The advantage H&R has over industry peers is its full diversification. Of the four major segments, the office segment is the largest. It’s a combination of single-tenant and multi-tenant office properties.

When you invest in this REIT, you’re playing the role of a landlord with ownerships in enclosed shopping centres, single-tenant retail properties, and multi-tenant retail centres too.

Long-term holding

TFSA investors, for the long term, have Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) as the core holding. This $49 billion bank is a logical choice if you seek a “buy-and-hold” asset.

Start by looking at the bank’s dividend track record. CIBC has been paying dividends since 1868 and counting. Next, the fifth-largest lender in Canada offers the highest dividend (5.18%) among the Big Five in the prestigious group.

A $200,000 investment in CIBC can balloon to $549,152.96 in 20 years. The monthly tax-free income is $10,360, which should be enough to supplement the CPP and OAS pensions.

Finally, the dividends are safe and enduring. The bank maintains a payout ratio of 50% to 60%, with plenty more for reinvestment.

The annual growth estimate over the next five years is 3.19%. CIBC should be hitting the target as it streamlines human resources. The bank wants to bring down the non-interest expense as a percentage of revenue. Management is after service efficiency and cost savings to be able to face the headwinds.

Financial bonanza

In conclusion, the primary objective of opening a TFSA is to increase the chances of meeting your financial goals. The choices of investments matter too. High-yield stocks like H&R and CIBC should produce financial bonanza, whether in the short or long term.

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 Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

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

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 3 Fabulous Stocks to Buy Now for Decades of Passive Income

Rogers Communications stock and Canadian Natural Resources stock could pay you dividends for decades to come.

Read more »