BN:CC - Saving for a Home? Top 2 Stocks for FHSA Investors
2023-08-01 10:00:00 ET
The First Home Savings Account (FHSA) is a new registered account that helps Canadians save for their first home. First-time home buyers are defined as people living in Canada who have not lived in their own home or their spouse’s or common-law partner’s home, as a principal residence, in the current calendar year or preceding four calendar years.
You can contribute up to $8,000 per year and up to a lifetime contribution of $40,000. FHSA contributions are tax deductible, like Registered Retirement Savings Plan (RRSP) contributions. An FHSA account can be opened for as long as 15 years before you use the money to buy your home.
You can imagine that FHSA investments are intended to be long-term investments. The shortest investment period for your first FHSA contributions is five years. That is, if you were to contribute $8,000 per year, you could contribute the lifetime contribution amount in five years.
Here are a couple of top stock ideas for your FHSA.
Boost your down payment with this top stock
Buying Brookfield ( TSX:BN ) stock in your FHSA today could greatly boost your down payment down the road. The long-term price chart suggests that the stock rises over time. Specifically, the stock has delivered total returns of about 14.7% per year in the last decade, although the stock has had a meaningful correction from a peak in 2021. Higher interest expenses and its exposure to commercial real estate and private equity could be some causes of the current weakness in the stock.
The long-term growth prospects of the business remain intact, even if Canada and the United States were to head into a recession by next year, as some economists forecast. After all, Brookfield generates substantial free cash flow across its operating businesses, of which the infrastructure, utility, and asset management businesses are resilient.
In fact, management targets earnings growth of north of 20% per year over the next five years. If this growth materializes, Brookfield stock could be a fabulous investment for long-term investment, particularly since the stock has yet to recover from a correction. At about $46 per share at writing, analysts believe the undervalued stock trades at a good discount of more than 20%.
Brookfield might require a more active investing strategy because the stock is sensitive to the economic cycle. It offers a small dividend yield of 0.8%. So, naturally, investors should aim to maximize capital gains in their Brookfield stock investment anyway.
Get more reliable returns from TD stock
The business performance of Toronto-Dominion Bank ( TSX:TD ) is also sensitive to the economic cycle. However, its results and the stock could be more resilient than Brookfield because the top Canadian bank stock pays a decent dividend yield of about 4.4%. This secure dividend provides a solid basis for reliable returns. In fact, the bank stock’s 15-year dividend-growth rate of 8.4% is above average.
From a long-term investment perspective, it’s a good idea to accumulate shares at around the current dividend yield. However, in the short to medium term, the stock could experience greater volatility or weakness from a potential recession by next year. So, investors could consider nibbling here and adding more on weakness.
In the past decade, TD increased its adjusted earnings per share by about 8.5% per year. Management targets a medium-term earnings-growth rate of 7-10%. Assuming a 7% growth rate and no valuation expansion, the approximated long-term returns would be around 11%, which is quite good for a blue-chip stock .
The post Saving for a Home? Top 2 Stocks for FHSA Investors appeared first on The Motley Fool Canada .
Fool contributor Kay Ng has positions in Brookfield and Toronto-Dominion Bank. The Motley Fool recommends Brookfield and Brookfield Corporation. The Motley Fool has a disclosure policy .
2023