Generation Y: 1 best TFSA action to build wealth for retirement

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Millennials may not be thinking about retirement yet, because their attention is elsewhere. You may be focused on your family or your career. Or you can just enjoy life, like the hot summer weather we have.

But if you happen to have extra cash you don’t need, you might be interested in stocking up on top-performing stocks in your Tax-Free Savings Account (TFSA) to create a wealth sheltered from tax. In fact, good deeds can lead to generational wealth creation.

The return of the Canadian stock market has been 8.9% per year over the past decade. What if you could invest for even higher returns? Saving and investing $500 per month, compounded at the following rates of return each year, will grow to the amounts shown in the table for your retirement and beyond.

Years Total contribution 8.9% per year ten% 12%
ten $60,000 $90,723.65 $95,624.55 $105,292.41
20 $120,000 $303,537.23 $343,650 $432,314.65
30 $180,000 $802,741.31 $986,964.14 $1,447,996.11
40 $240,000 $1,973,741.38 $2,655,555.33 $4,602,548.52

A top dividend stock for the TFSA

One of the top TFSA securities that millennials should consider buying and keeping is Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP). The diversified utility has outperformed the market and the utility sector in terms of total returns over the past one, three, five and 10 years.

The chart below shows how an initial $10,000 investment in Brookfield Infrastructure stock, the Canadian stock market and the utilities sector has performed over the past decade. Specifically, the major utilities stock has significantly outperformed, achieving total returns of almost 20.5% annually. The investment posted gains of $40,910 more than the second (the Canadian stock market) during the period!

XIU Total Performance Level Table

BIP.UN, XUT and XIU total performance level data by YCharts

Currently, the dividend-paying stock yields 3.3%. And it aims to increase its cash distribution by 5-9% per year. It would be a good idea to buy the stock whenever it consolidates or dips significantly.

Deals

BIP is a diversified company with a global portfolio of infrastructure assets in the utilities, transport, midstream and data sectors. It provides essential products and services through economic cycles. Approximately 43% of its assets are in North America, 20% in Asia-Pacific, 19% in South America and 18% in Europe.

The utility maintains quality cash flow which increases sustainably as it is regulated or contractual at approximately 90%. Additionally, approximately 70% is inflation-linked and has no volume risk.

Brookfield Infrastructure also makes strategic acquisitions. It is a good thing for equity investors to be a value investor and a trader who has the expertise to optimize the acquired assets. Therefore, he would sell mature assets for impressive profits when opportunities presented themselves.

Recent results

The global infrastructure pie has decades to grow. As a globally diversified infrastructure company, Brookfield Infrastructure has no shortage of opportunities for growth. This year again, management expects to exceed its objective for the deployment of investments. Over the last approximately 12 months, BIP has deployed approximately US$3 billion in new investments.

In the first half of the year, its funds from operations grew 22% to more than US$1 billion. On a unit basis, the growth rate was 11%, which is extraordinary compared to the industry.

Identify the other most important actions for your TFSA

While Brookfield Infrastructure is a great company, millennial investors shouldn’t put all their eggs in one basket. Your retirement is too important to rely on just one action. You need to diversify your stock portfolio among quality companies from different industries that have a good chance of beating the market and their respective industries.

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