Where to Invest Your $7,000 TFSA Contribution for Maximum Income

RBC stock is a strong option when you’re seeking out what to put your TFSA contribution room towards. Let’s get into why.

Amy Legate-Wolfe ❯

@amylegatewolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published December 4, 2024 4:40 pm EST

Investing your annual $7,000 Tax-Free Savings Account (TFSA) contribution limit is one of the smartest financial decisions you can make. Deciding how to allocate it effectively is key to building wealth over time. With no taxes on the growth or withdrawals, a TFSA offers the perfect opportunity to grow your investments without worrying about the taxman. Let’s dive into why a mix of solid dividend stocks, exchange-traded funds (ETF), and blue-chip performers like Royal Bank of Canada (TSX:RY) makes sense, especially given RY’s impressive earnings performance.

Options to choose

The first rule of investing in your TFSA is diversification. Spreading your investment across multiple assets helps manage risk and creates stability. Think of your portfolio as a team. Each player has a role, and together, they can win the financial game even if one teammate falters. This approach not only reduces risks but also takes advantage of different sectors’ potential growth.

Now, when it comes to Canadian blue-chip stocks, Royal Bank of Canada is often a standout. RBC stock is Canada’s largest bank by market capitalization—a position it’s held for years due to its strong financial performance and diversified operations. From personal and commercial banking to wealth management, insurance, and capital markets, RBC stock has its hands in almost every aspect of finance. This diversification is a major strength because it ensures the bank’s earnings aren’t overly dependent on one business segment.

Speaking of earnings, let’s look at RBC’s recent results, which continue to solidify its reputation as a top-tier investment. In its latest quarterly earnings report (Q4 2024), RBC stock posted a 17.7% increase in adjusted net income, reaching a whopping $4.44 billion. This stellar growth was driven in part by its acquisition of HSBC’s Canadian operations earlier this year. This brought in 780,000 new clients and significantly expanded its mortgage and corporate loan portfolios. The integration of HSBC’s operations is already proving to be a game-changer, adding both scale and revenue to RBC’s core business.

Considerations

Looking ahead, RBC stock is positioned for continued growth. Its strategic acquisitions, strong balance sheet, and diversified revenue streams provide a solid foundation. The bank’s trailing annual dividend yield of 3.15% and forward yield of 3.23% are especially appealing for TFSA investors seeking reliable income. With a payout ratio of just under 49%, RBC stock maintains ample room to continue rewarding shareholders while reinvesting in growth.

For your TFSA, allocating a portion of your $7,000 to RBC stock could be a winning move. Its consistent performance, strong dividend history, and growth potential make it an anchor for any portfolio. Pairing RBC with a low-cost ETF would add diversification.

Another advantage of choosing RBC stock for your TFSA is its resilience in uncertain markets. Over the past year, its stock has risen significantly, with a 52-week range between $123.44 and $179.86, nearing its high again after a brief dip. This performance demonstrates investor confidence and RBC stock’s ability to thrive even when economic headwinds arise. It’s not just a safe choice. It’s a smart one.

Bottom line

The TFSA is a financial powerhouse when used wisely. By investing in blue-chip giants like RBC stock alongside diversified ETFs, you create a balanced portfolio that generates income, capital gains, and peace of mind. Whether you’re saving for retirement, a big purchase, or simply growing your wealth, your TFSA contribution limit is an opportunity you shouldn’t pass up. With RBC stock’s strong fundamentals, robust dividends, and future outlook, it’s a perfect place to start.