The Tax-Free Savings Account (TFSA) is Canadians’ best long-term investment tool. The capital gains and dividends produced within a TFSA are tax free throughout the holding period. The contribution limit for 2022 is $6,000, and the accumulated limit extends to $81,500. Here are some of the TSX stocks investors can consider for their TFSA contribution this year.
Stocks generally underperform amid rising inflation. However, there is a caveat to this norm. Some stocks and sectors do play well in inflationary periods, and Dollarama (TSX:DOL) is one of those names.
Canada’s discount retailer Dollarama has a large presence in the country that differentiates it from its peers. It will likely see higher demand as consumers seek value in a rising price environment. Though Dollarama operates in a slow-growth industry, it has seen handsome financial growth in the long term. In addition, its wide geographical presence offers convenience and plays well for top-line growth.
Dollarama has seen an average of 10% same-store sales growth for the last several years. Its long-standing relationships with suppliers and cheaper shipments from China aid healthy margins even higher than its peers in the U.S.
If the recession hits in the short to medium term, Dollarama will likely be relatively resilient. Moreover, its stable earnings growth and less-volatile stock make it an apt defensive stock on the TSX.
DOL stock has proved its mettle amid volatile markets this year. It has gained 28%, while the TSX Composite Index has lost 7% this year. Also, it has returned 700% in the last 10 years, beating TSX stocks by a wide margin.
Canada’s oil and gas producer Vermilion Energy (TSX:VET)(NYSE:VET) stock sits on top of the chart with the highest 87% gain for the year. While TSX energy stocks, on average, have gained 32% in 2022, VET’s outperformance is indeed noteworthy. So, what’s unique about Vermilion Energy?
Vermilion Energy operates diversified energy assets located in North America, Europe, and Australia. Its large exposure to Europe is what stands tall among its peers. We know that oil and gas prices in North America have risen steeply this year. However, gas prices in Europe have skyrocketed even higher than in North America, mainly due to the tensions between Russia and Ukraine.
Notably, the war in Europe and the ensuing war of sanctions will not get better anytime soon. So, the energy prices could remain high, boosting Vermilion Energy’s earnings.
In the last few quarters, Vermilion has seen decent free cash flow growth, which is largely in line with its peers. That has led to aggressive debt repayments and dividend reinstatement. Even if VET stock yields an insignificant amount at the moment, there is a huge dividend-growth potential.
So, based on Vermilion’s Europe exposure, potential dividend hike, undervalued stock, and strong balance sheet improvement, Vermilion could create sizeable shareholder value in the long term.