TFSA Investors: Got $6,000? Buy This Dividend Stock Now

TFSA investors will get the best bang for their new $6,000 contribution limit if they buy one high-yield asset. Chemtrade Logistics stock offers a nearly 8.5% dividend yield.

| More on:

Canadian savers and investors look forward to the annual contribution limit for the Tax-Free Savings Account (TFSA). The Canada Revenue Agency (CRA) usually makes the announcement every November. There have been 12 announcements since the introduction of the TFSA in 2009.

For 2021, the annual contribution limit is $6,000 — the same as in 2019 and 2020. Someone who has never contributed to a TFSA and was 18 years old on the account’s inception will have a cumulative contribution room of $75,500 on January 1, 2021. You’re doing all right if you’ve been maxing out your limit each year.

Simple rules to follow

You don’t need to think out of the box when using your TFSA, because the rules are simple. The CRA indexes the TFSA yearly limit to inflation and rounds it to the nearest $500. Contribute up to the maximum limit or available contribution room to avoid incurring a penalty tax (1% per month of excess amount).

The CRA also prohibits frequent or day trading. Otherwise, your earnings become business income and are therefore not tax-exempt. You can invest in foreign investments too for international diversification. However, be aware that income derived from assets abroad is subject to a 15% withholding tax.

Eligible investments

The TFSA name is somewhat inaccurate, because it’s not an ordinary savings account. Treat it as your basket for saving and investing to achieve your short-term and long-term financial goals.  If you’ve been maintaining a Registered Retirement Savings Plan (RRSP) before the TFSA, you can hold the same eligible investments you put in your RRSP.

Bonds, mutual funds, GICs, ETFs, and stocks are the qualified investments in a TFSA. Cash is okay, although your TFSA won’t deliver the goods if you store mostly cash in your basket. While there are zero risks and instant liquidity, idle cash can’t generate as much tax-free income when you’re building wealth.

Most TFSA users prefer stocks, because the potential returns are higher. Likewise, you can grow your balance faster with dividend stocks. The magic of compound interest works best if you accumulate stocks and keep reinvesting the dividends.

Established niche

Users have a fresh opportunity to earn tax-free income from the new TFSA contribution limit in 2021. Chemtrade Logistics (TSX:CHE.UN) flies under the radar, but you’ll get the best bang for your $6,000. The income stock pays an over-the-top 8.49% dividend. Your TFSA contribution will generate $509.40 in tax-free income. Thus far, this year, the industrial stock’s gain is 21.28%

The $723.03 million company is well known in the specialty chemical industry. It provides industrial chemicals and services to customers in North America and internationally. Chemtrade manufactures its products in 65 facilities. The critical industries it serves include agriculture, pharmaceuticals, water treatment, and oil & gas.

Dozens of other industries such as pulp & paper, food production, electronics, and semiconductors demand Chemtrade’s performance chemicals and solutions. The global pandemic did impact sales volume. However, Chemtrade’s president and CEO Scott Rook expect to see improvement in the bottom line when COVID-19 is under control. Its customers should resume normal operations.

Unmatched features

The TFSA is more popular than the RRSP today. Its versatility and flexibility are unmatched. For this reason, the government encourages Canadians to maximize the full potential of their TFSAs. Unlike the RRSP, you can maintain the account past 71 years old, if not for life.

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

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »