A Tax-Free Savings Account (TFSA) should be used by every Canadian. This is because any gains generated in a TFSA can be withdrawn without having to pay any taxes, allowing you to snowball your account much faster. In other words, by using a TFSA, you could help accelerate your way to financial independence and allow you to retire sooner. It should be noted, however, that Canadians are limited in how much money they can contribute into one of these accounts per year.
In 2023, Canadians were given $6,500 in contribution room. That may not be the largest amount, however, your total contribution room has been accumulating since the year you turned 18. If you turned 18 in 2009 and haven’t opened a TFSA yet, then you actually have $88,000 in contribution room waiting to be used.
In this article, I’ll discuss three top TSX stocks for this year’s $6,500 contribution room.
Buy one of the Canadian banks
In my opinion, every Canadian should hold shares of at least one Canadian bank in their TFSA. This is because the Canadian banks are very well-established companies that have built reputations as strong stocks. In addition, the Canadian banking industry is highly regulated, which makes it difficult for smaller companies to displace the industry leaders.
If I could only pick one Canadian bank to hold in my portfolio, it would be Bank of Nova Scotia (TSX:BNS). What makes this company stand out among its peers, in my opinion, is its outstanding diversification. Bank of Nova Scotia has committed itself to growing in countries outside of North America. With a particular focus on the Pacific Alliance, Bank of Nova Scotia has set itself up for an exceptional growth opportunity. It’s estimated that the economies of Chile, Columbia, Mexico, and Peru could grow faster than the Canadian and American economies over the coming years.
This is a tremendous company
Constellation Software (TSX:CSU) is the second stock that investors should consider buying in their TFSA this year. This company acquires vertical market software (VMS) businesses. Upon the completion of an acquisition, Constellation Software provides the coaching and resources required for those acquisitions to become exceptional business units. Since its founding, Constellation Software has perfected its strategy and acquired hundreds of VMS businesses.
This success has been reflected in Constellation Software’s stock price. Since its initial public offering in 2006, Constellation Software stock has gained more than 14,300%. That represents a compound annual growth rate of more than 30%. Over the past year, Constellation Software stock has gained more than 24%, which suggests that the company could continue outperforming the broader market for years to come. Still led by its founder Mark Leonard, this is one company that I am very happy to hold in my own TFSA.
The stock that pays you to hold shares
Finally, investors should consider buying Fortis (TSX:FTS) in their TFSA. This company provides regulated electric and gas utilities to more than three million customers across Canada, the United States, and the Caribbean. Because of the nature of its business, Fortis can take advantage of a highly predictable and stable source of revenue. It does so by planning dividend distributions years in advance. That has allowed Fortis to maintain a dividend-growth streak of 49 years — the second-longest active streak in Canada.
Fortis has already announced its plans to continue raising its dividend through to 2027 at a rate of 4-6%. I strongly believe that Fortis will announce further increases past those years in the future. Today, Fortis offers investors a forward dividend yield of 3.80%.