The Tax-Free Savings Account, or TFSA, is a registered account in Canada that was introduced back in 2009. As the name suggests, any returns generated in this account are sheltered from Canada Revenue Agency taxes. Moreover, you can hold qualified investments, including stocks, bonds, and mutual funds, in a TFSA that can help you generate inflation-beating returns in the account over time.
However, according to a Bank of Montreal (BMO) report, while 53% of TFSA owners hold investments in their accounts, around 47% have their savings in cash. So, a large portion of TFSA owners are missing out on opportunities for enhanced tax-free growth.
The BMO report states that the average TFSA balance increased by 9% to $41,510 in 2023. However, increasing your TFSA balance without investing in various asset classes does not make financial sense.
Where should TFSA owners invest?
TFSA owners with a low-risk appetite or a short-term investment horizon can consider allocating funds towards fixed-income instruments such as bonds or Guaranteed Investment Certificates (GICs). With inflation cooling off and interest rates hovering near multi-year highs, low-risk investments such as GICs can help you earn a yield of 5% in the next 12 months.
Alternatively, you can also consider allocating funds towards stocks and exchange-traded funds. As investing in individual stocks can be tricky, a significant portion of your savings should be allocated towards low-cost index funds, allowing you to beat the majority of Wall Street investors.
Canadian investors can purchase funds that track indices such as the S&P 500 or Nasdaq, providing you with exposure to some of the largest companies in the world.
For those looking to generate higher returns, investing in quality growth stocks such as Restaurant Brands International (TSX:QSR) is a good option. Let’s see why.
Restaurant Brands International is a TSX giant
Valued at $46.7 billion by market cap, Restaurant Brands International has surged 244% since its IPO (initial public offering) in December 2014. It owns and operates several quick-service brands, such as Popeyes, Burger King, and Tim Hortons.
Despite a sluggish macro environment in 2023, QSR increased comparable sales by 7% year over year in the third quarter (Q3), while net restaurant growth stood at 4.2%. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose by 9.3% due to growth in Tim Hortons Canada, Burger King International, and Burger King U.S.
Earlier this month, Restaurant Brands announced plans to acquire Carrols Restaurant for US$1 billion, indicating a premium of 23.1% to the latter’s 30-day volume-weighted average price. Carrols is the largest Burger King franchisee in the U.S. operating 1,022 restaurants in 23 states, generating US$1.8 billion of system-wide sales in the last 12 months. Moreover, Carrols also owns and operates 60 Popeyes outlets in six states.
The transaction will be completed in the second quarter of 2024, adding over US$500 million to QSR’s top line this year. Priced at 22.6 times forward earnings, QSR stock is not too expensive, given its earnings growth is forecast at 11.3% annually in the next five years.
QSR also pays shareholders an annual dividend of US$2.20 per share, indicating a yield of 2.7%. These payouts have risen by 22% annually in the last nine years.
