The S&P/TSX Composite Index recovered slightly in 2023. However, the persistently high inflation and rising interest rates indicate that the market could stay volatile in the near future. However, this shouldn’t stop you from leveraging the unused $6,500 TFSA (Tax-Free Savings Account) contribution room to invest in top Canadian stocks to generate attractive capital gains and dividend income in the long term.
In this article, I’ll discuss two fundamentally strong Canadian stocks that are a compelling investment for your TFSA portfolio.
Enbridge
Enbridge (TSX:ENB) is a reliable stock for TFSA investors to generate steady income and capital gains. This large-cap company transports oil and gas. In addition, it continues to ramp up its low-carbon investments, positioning it well to capitalize on the energy transition opportunities.
It’s worth mentioning that Enbridge has about 40 diverse sources of revenue. Moreover, its assets witness a high utilization rate. Thanks to its solid business model and two-pronged growth strategy (investments in conventional pipeline assets and green energy), Enbridge is likely to deliver stellar returns.
Enbridge has raised its dividend for 28 consecutive years at a CAGR (compound annual growth rate) of 10%. What stands out is that ENB increased its dividend, even during the pandemic, when most energy companies reduced their payments. This shows the resiliency of its business model.
Enbridge is poised to gain from steady demand and energy transition opportunities. Meanwhile, its multi-billion-dollar secured projects and revenue escalators bode well for growth. Furthermore, its inflation-protected EBITDA (earnings before interest, taxes, depreciation, and amortization) and contractual arrangements to account for commodity price and volume risk will likely support its dividend payments. Also, its dividend payout ratio of 60-70% is sustainable.
Overall, Enbridge is a solid long-term bet to generate regular income and decent capital gains in the long term.
Dollarama
Dollarama (TSX:DOL) is compelling stock to invest in all market conditions. Its defensive business model and ability to deliver strong growth support its stock price. Moreover, its growing earnings base enables it to enhance its shareholders’ returns through higher dividend payments.
Dollarama’s revenue and earnings have grown double over the past decade. Its large store base and broad product offerings at compelling value (at multiple and low fixed price points) position it well to drive traffic and deliver outsized returns. Dollarama will likely perform well, even amid an economic slowdown thanks to its value pricing. In addition, Dollarama’s growing digital footprint to add more customer convenience augurs well for growth.
This value retailers’ growing store base in key markets (including the international market), solid organic sales, and increasing earnings base provide a solid foundation for long-term growth. Moreover, its focus on returning cash to its shareholders should act as a catalyst. Dollarama has returned about $5.5 billion to its shareholders since FY13 through share repurchases. Furthermore, it has paid dividends worth $533 million to its shareholders since FY12.
It’s worth noting that 93% of Dollarama’s debt is of a fixed rate, which is positive. Moreover, its capital-efficient model supports profitable network growth.
Dollarama is a solid stock for generating solid tax-free capital gains and consistent income. Further, its low-risk business adds stability to your TFSA portfolio.
