The introduction of Tax Free Savings Accounts a couple of years ago is one of the best programs to be introduced for Canadian investors in some time.  After all, anything to reduce the amount of taxes we pay is a good thing.  There are numerous online discussions on various strategies for the TFSA: emergency cash savings, RSP alternative, dividend income growth, high-growth speculation, etc.

In the first year I didn’t put much thought into the account and threw the deposit into a high rate savings account.  However, recently inspired by various online dividend growth blogs and Lowell Miller’s “The Single Best Investment”, I’ve decided to establish my TFSA as a dividend income compounding machine.  My plan is to buy consistent dividend payers (or dividend stock ETFs), reinvest the income through synthetic DRIPs and take advantage of my 15 to 20 year time horizon to let compounding do its magic.  To start I’m looking at the following stocks:

  • Emera (EMA)
  • Fortis (FTS)
  • iShares Dow Jones Canada Select Dividend Index Fund (XDV)*

* iShares recent switch to monthly distributions for XDV may impact my decision on this stock as the distributions may not be enough to DRIP a whole share

A big advantage (apart from no tax) of using the TFSA is not having to track the adjusted cost base as dividends are reinvested. Over time, I’m hoping that consistently adding to the account each year and reinvesting the dividends will help me supplement my income ~15 years from now.  We’ll see how it works out.  I’ll post updates from time to time.

What are your thoughts?  Are there any readers out there using a similar strategy for the TFSA?  I’d love suggestions.

Disclaimer:  This blog has no professional association with any organizations or companies mentioned in the article.  The contents of the article are the personal opinion of the author at the time the article was posted and may be subject to change.  The blog and author are not responsible, nor will be held liable for any content posted by others in the blog comments.  Readers should complete their own due diligence prior to making any personal decisions.