do dividends contribute to tfsa | Tax Free Savings Accounts | Discussion forum

Any income earned within a tfsa is not taxed so make sure dividends are paid into the tfsa - which would normally happen when you buy shares within the tfsa account.

Holding your stocks in the TFSA also means all the capital gains will be tax-free.

This is true, and it's also true that any capital losses you might incur holding stocks inside your TFSA are similarly not deductible either. People tend to forget that side of the coin before making TFSA investment decisions

The point being, aside from doing your normal investor due diligence, you need to be extra choosy about the type of stocks you put inside your TFSA, and when it comes to dividend paying stocks, you also especially need to consider that the market value of those stocks is probably going to fall if interest rates rise, and you can get trapped holding them the same way that you'd get trapped if you're in a bond fund. The inability to write off any capital losses will just add to the pain

It kind of depends on how much money you have. If 50K in the TFSA is all you have, then you shouldn't put it in stocks of any kind because all stocks are subject to volatility. You can keep it in TFSA as rainy day money, but in a savings account or cahsable GIC.
No job is so secure that you can't assume you may not need that cash at some point - especially with the unknowable implications of decision of Trump.
You should not look at dividends as a gold-plated guarantee either. Dividends of Cdn blue chips tend to remain impressive but they are calculated as a percentage. You need to ask, a percentage of what? And how stable is that "what"? Other people on this board will know the answer to this immediately, but I don't as I don't buy them. My understanding is that it's a percentage of the market value of the stock, which fluctuates.

Personally, I would never put gold stocks in a TFSA, even if I were inclined to buy them. Gold stocks are extremely volatile and are best held outside of a TFSA where you can take capital losses if necessary. And I would not put them in my rainy day fund. You can lose your shirt on gold stocks, and many have. It's also quite difficult to pick a good one. If you MUST have exposure to gold, then make it through an ETF - and those too must be looked at very very carefully. 20% is far too high a percentage to have in gold if the TFSa is all you have. 5% is plenty, even in a larger portfolio; 10% tops.
You should probably consider a communications stock instead of the gold - e.g. Bell, Rogers, Telus etc.

"Retail" is also a difficult category. What did you have in mind?

I can't emphasize enough that you need to have a very solid understanding of these companies before you invest in them.

To be perfectly honest, I think you have stars in your eyes about dividends. It's not that simple. You should adjust your expectations, and be more prudent. Don't rest all your hopes in dividends.

Dividends for common stocks are not based on a % of fluctuating stock prices. Dividends are a certain dollar/cents amount per share, no matter its value, usually paid quarterly, and there are many Canadian blue chip stocks that have a long history of paying out steadily increasing (usually annual increases) dividends.

I'm not convinced getting advice re stocks on a site dedicated to ultra-savers, some of whom shun stocks because they are not "guaranteed", is the best idea for potential investors.

Top It Up said

On a side note - why would anyone ever invest in a stock that was going to do anything other than go UP in value?  

I agree, EVERYBODY thinks the stock THEY picked is going to go up, just like they believe that the horse they picked is going to win the Queen's Plate.

Who knowingly buys something in the expectation that it might decline in value? I guess it depends on how broad your scope of "value" is, e.g. if I could buy something that paid a 15% dividend but at the same time declined in trading price 5% per year, I'd still be ahead by 10% per annum -- some of the older oil & gas income trusts used to trade exactly like that, but it's definitely a rarity.

I was only trying to point out that we are still not far from historic lows for interest rates, and market recognition of a reversal of that trend (even a comparatively small one back to "normalized" levels) would have a profound negative impact on the trading value of higher yielding shares as the market reprices them to reflect a different interest rate dynamic. It's a real risk that many even experienced people don't pay enough attention to IMO, probably because they've gotten used to these many years of absurdly low rates, or in the case of younger investors, perhaps because they've never known anything different.

A similar shock also awaits people carrying huge mortgages (especially variable products) if they don't have the resources to pay the balance down or the income to make significantly higher payments as their interest rates adjust upward. That's what's behind the new stress testing that mortgage renewals are now subject to, but we won't really know until after a crisis occurs whether that was a sufficient defensive measure on the part of the banks.

undersc0re said
I am still watching and reading tutorials, no hard decisions yet, banks are probably better than gold though lol. As for retail, not sure, something like dollarama or canadian tire seem stable.

As a newer investor is it that bad to do tfsa, seems like some say I will fail and I won’t be able to claim the loss when it inevitably happens! I will take these suggestions and make a very careful final decision before investing, I plan on keeping it all in there to compound for about 15-16 years. I just want to get the tfsa going for now. A little scary doing a self directed tfsa with all that money, and a process to get it all going hopefully where I do not lose my shirt. I think I will be safe as long as i stay away from crypto currency and other unstable things that could go bust.  

There are no real losses until you sell the stock or it goes belly-up. I think a horizon of 20-25 years is more realistic to avoid losses. on individual stocks. I know someone who bought a gold stock on broker's recommendation about 25 years ago or so and is still looking at a loss of about 80% (not including inflation) as the stock in question has not come back up yet. As he bought it inside a registered plan, he cannot get any compensation for losses, so he's still waiting because it's not worth selling. He's afraid to sell it now anyway in case gold is about to take off in these uncertain times.

It may seem like a lot of money , but, really 50K isn't that much money if it's all you have. In today's volatile Trumpian economy, I think everyone would be well advised to have two years of funding as emergency money which is accessible if they do not have parents to rely on as back-up.

TFSAs are very useful. It's a question of how you use them.
I will assume you have an additional 50K saved for emergency use, making a total of about 100K savings. In that case, I would suggest you put 50K into TFSA in savings account and one year GICs, about equally divided, even if it completely boring. This will give you the best tax advantage for your emergency funds as interest gets fully taxed otherwise

You could then invest the other 50K in either a selection of stocks such as you have named or into ETFs or low-cost mutual funds (see Canadian Couch Potato site for suggestions). With the Canadian dividend-producing stocks, you will then be able to benefit from the dividend tax credit, which is quite advantageous, especially to lower income people. Capital gains will also get better treatment tax-wise; and capital losses can also be claimed, should this be necessary.

If, on the other hand, all you have is 50K and no other emergency back-up, I would not recommend any stocks , ETFs or mutual funds at this time. Wait until you have more money, and put what you have into TFSA as described above. Do not consider real estate as an emergency source of funds.