Got $6,000 to Invest in a TFSA? Here’s How to Turn it Into $116,000

Buying top dividend stocks inside a TFSA at the right time can lead to huge growth in your retirement savings. Check out these two cheap stocks today.

| More on:

The stock market rally after the market crash in March caught most investors by surprise. TFSA investors sitting on cash are now wondering which stocks might be the best picks for a buy-and-hold portfolio.

Despite the overall recovery in the TSX Index, many top dividend stocks still trade at cheap prices and now provide above-average yields. This is important for investors who want to use the power of compounding to build a substantial TFSA retirement fund.

Is Bank of Nova Scotia a good TFSA investment?

Market corrections usually turn out to be great opportunities to buy the Canadian banks. At the moment, Bank of Nova Scotia (TSX:BNS) (NYSE:BNS) is the cheapest.

The stock trades at less than 10 times earnings. The other members of the Big Five banks all trade at multiples that are closer to 12.

Bank of Nova Scotia faces some near-term risks with its international division. This is likely the reason for the discount, but the spread looks overdone.

Bank of Nova Scotia invested heavily in recent years to build a large presence in Mexico, Colombia, Peru, and Chile. Latin America continues to struggle with the pandemic, and these countries rely heavily on strong markets for oil and copper to support their economies.

Once vaccines becomes widely available and the global economy ramps up its recovery, things should improve for Bank of Nova Scotia’s international business.

In the meantime, the bank remains very profitable overall, and the dividend should be safe. Investors who buy the stock inside their TFSA today can pick up a 6.4% yield.

Long-term investors have done well with the stock. A $6,000 investment in Bank of Nova Scotia just 25 years ago would be worth about $116,000 today with the dividends reinvest.

Should you buy BCE for your TFSA today?

BCE (TSX:BCE)(NYSE:BCE) is a great TFSA pick for investors who want reliable and steady dividends from a stock that isn’t heavily impacted by global financial turbulence.

The company enjoys a wide competitive moat in the Canadian communications sector. Its world-class wireless and wireline network infrastructure provides mobile, internet, and TV services to million of Canadian homes and businesses. BCE invests the capital needed to maintain its leadership position and should benefit in the coming years from the expansion of 5G.

The stock trades near $55 per share compared to $65 before the pandemic. At the time of writing, the dividend offers a solid 6% yield.

Low interest rates benefit BCE in a few ways. First, they reduce the cost of borrowing to fund capital programs. This potentially frees up more cash for investors. In addition, low interest rates tend to drive yield-seeking funds into safe telecom and utility stocks.

Revenue and free cash flow growth normally support steady annual dividend increases in the 5% range. The current environment might result in a pause, but the medium-term outlook should be positive.

The bottom line

Bank of Nova Scotia and BCE are leaders in their respective industries. The stocks appear oversold right now and provide above-average dividend yields that should be safe.

If you have some cash available to invest in your TFSA, Bank of Nova Scotia and BCE deserve to be on your radar today.

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.

The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Andrew Walker owns shares of BCE.

More on Investing

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

ways to boost income
Investing

Are Telus and BCE Stocks a Smart Buy for Canadian Investors?

Telus (TSX:T) and BCE (TSX:BCE) have massive dividend yields, but their shares have been quite sluggish!

Read more »

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »