This is TFSA Trouncers, a series that profiles Canadian investors who’ve accomplished incredible feats with their tax-free savings accounts. If you have grown your TFSA to half a million dollars or more, drop us an e-mail at dakeith@globeandmail.com, or fill out this form. You may choose to be anonymous, but we do require an e-mail address and we may request a screengrab of your portfolio for fact-checking purposes. We’ll also be profiling those who haven’t been so lucky with their TFSA.
Paul, 46, and his wife, Elizabeth, 42, are both teachers in Toronto and had accumulated surplus savings of $150,000 by 2019. However, they didn’t want to hold the funds in a savings account earning interest of less than 1 per cent, subject to taxation and inflation.
Instead, they opened tax-free savings accounts and invested in stocks that pay dividends. Combined, their TFSAs are now worth $2-million (verified by screenshots). The stocks also pay tax-free dividends of $15,000 per month.
The windfall resulted from purchasing junior and intermediate oil and gas stocks in early 2020. The stock market was then crashing during the first alerts about the COVID-19 pandemic, and a price war between Russia and OPEC had depressed the price of oil.
Several months before buying the stocks, Paul had browsed investment websites, corporate presentations, quarterly reports, industry publications and other sources in the energy sector. He thought oil and gas stocks would be good a good place to invest because they were very cheap.
“Initially I was looking at larger companies like Ovintiv OVV-T and Canadian Natural Resources Ltd. CNQ-T, but then figured smaller companies with lower stock prices would potentially represent a better investment in terms of percentage growth,” recalled Paul.
“I settled on Peyto Exploration & Development Corp. PEY-T as the company I wanted to focus on,” Paul added. “As this was happening, a global pandemic was declared and stock prices declined even further.”
In the history classes he taught, Paul had regularly covered stock market crashes. So, he was aware that it was often a good time to buy stocks when they were deeply discounted by market panics.
Peyto’s stock was priced just above $1. The company was (and remains) the lowest cost natural gas producer in Canada, its long-term debt was not due for a few years and its hedging of gas sales steadied its cash flow. The stock’s dividend yield was 20 per cent.
Paul put $69,500, the cumulative contribution limit for his TFSA at the time, into Peyto. Weeks later, the $69,500 in his wife’s TFSA was invested in the shares of Crew Energy Inc. CR-T and Peyto.
Soon after investing, Peyto cut its dividend. As natural gas prices recovered, however, the company raised its dividend in stages to levels higher than when Paul bought, from a low of 1 cent per quarter in 2020 to the current 11 cents per month.
The couple put the balance left over from the $150,000 in savings into the two stocks when TFSA contribution room became available in January, 2021. A takeover bid from Tourmaline Oil Corp. TOU-T for Crew Energy is expected to close in early October.
Paul believes Canadian energy companies will continue to do well, thanks in part to new pipelines coming on stream. With the completion of the Trans Mountain Expansion, and LNG Canada likely to be finished next year, new markets in Asia should open up.
He also thinks the switch to more environmentally friendly sources of fuel will not happen as soon as some people expect. “I think that natural gas will continue to be in demand at least for another 10 to 15 years,” Paul states.
The couple intend to keep holding Peyto. They will also hold onto Tourmaline once its acquisition of Crew Energy is completed – which should increase their income stream, since Tourmaline pays a dividend while Crew Energy did not.
Rounding out their portfolio are small holdings in two oil and gas companies: Birchcliff Energy Ltd. and Gear Energy Ltd. They were bought with dividends from Peyto (whose founder is also the founder of Gear Energy).
“We do plan to invest in other sectors at some point over the next few years,” adds Paul. Utilities and REITs have been on the radar. But they are in no rush to buy. While the recent decline in interest rates may give a lift to REITs, their payouts “are not great when you look at their yield.”
What an expert says
We asked Warren MacKenzie, an independent Toronto-based financial adviser who holds the Chartered Investment Manager designation, for his thoughts on Paul and Elizabeth’s TFSA investments:
“Paul and his wife invested in the right stocks at the right time and turned a $150,000 investment into $2-million, tax free. To have such large returns in less than five years is rare. The reality is that few investment professionals and even fewer DIY investors have the expertise, are willing to do the necessary research, or can afford to take the risk associated with this way of investing.
Paul spent several months researching to determine that the stock he was most interested in had dropped about 80 per cent from its high of $37 to $1.10 in March, 2020. As a teacher, Paul understood the history of stock market crashes and recoveries because this is a subject he teaches. His research also showed that the company fundamentals of the stock he was interested in were relatively unchanged, but the price was being impacted by the global pandemic and the oil price conflict between Russia and OPEC.
People with secure jobs and good pensions, such as Paul and his wife, can take on the higher risk associated with an investment portfolio concentrated in only two Canadian equities. If they lost their entire investment, it would not have impacted their financial security. Others should not take on such risk unless they are using money they can afford to lose or don’t need.”
Larry MacDonald is a regular contributor to The Globe and Mail and author of a new book, The Shopify Story: How a Startup Rocketed to E-commerce Giant.
Read more from this series here.