Yesterday, the Federal Reserve of the United States announced a tenth interest rate hike in just over a year, thus taking the Fed’s fund rate to 5%–5.25%. The benchmark interest rates have reached the highest since August 2007. However, the central bank tentatively indicated that it is approaching the end of its monetary tightening cycle. Meanwhile, higher interest rates could weigh on global growth, thus hurting equity markets.
Given the uncertain outlook, investors should be careful while investing through a TFSA (tax-free savings account), as the decline in stock value could lead to a reduction in contribution room. So, here are my three top picks to buy for your $6,500 TFSA contribution.
Canadian Utilities
Canadian Utilities (TSX: CU) is a diversified energy infrastructure company involved in transmitting and distributing electricity and natural gas, production and storage of energy, and retail sales. Given its low-risk utility businesses and operational excellence, the company has been delivering stable and predictable financials, irrespective of the economic outlook. Over the previous 20 years, CU has delivered average total shareholders returns of 9.3%, higher than the S&P/TSX Composite Index.
Meanwhile, I expect the uptrend to continue as Canadian Utilities is looking at growing its rate base at a CAGR (compounded annual growth rate) of 2% through 2025. Besides, the company acquired a portfolio of wind and solar assets located in Alberta and Ontario from Suncor Energy. CU has raised its dividends uninterruptedly for 51 years, the longest among Canadian public companies. Also, it trades at an attractive NTM (next 12 months) price-to-earnings multiple of 16.3, making it an enticing buy.
BCE
As the demand for telecommunication services remains resilient in this digitally connected world, telecommunication companies are reliable defensive bets. So, I have picked BCE (TSX: BCE) as my second pick. Today, the telco posted mixed first-quarter performance for 2023, growing revenue by 3.5%. Its strong performance from wireless and internet segments more than offset the slowdown in advertising revenue to drive its topline. Meanwhile, adjusted EBITDA fell 1.8% amid higher operating expenses.
BCE made a capital investment of $1.1 billion during the quarter. The company added that it is on track to add 650,000 new fibre connections this year while expanding its 5G service to 85% of Canadians. The company is planning to lower its capital expenditure this year, which would provide more cash for distribution, thus allowing it to pay dividends at a healthier rate. With a quarterly dividend of $0.9675/share, BCE’s forward yield currently stands at 5.92%.
Nuvei
Despite the volatility, I am picking Nuvei (TSX: NVEI), a growth stock, as my final pick. The company continues to deliver solid performances. Revenue and adjusted net income grew by 16% and 10% in 2022, respectively. Considering the growing popularity of digital payments and the company’s expansion, I expect the uptrend in Nuvei’s financials to continue. After acquiring Paya Holdings for $1.3 billion in February, it is strengthening its position in the United States.
Meanwhile, Nuvei has provided impressive guidance for this year, with the mid-point of its revenue and adjusted EBITDA guidance representing year-over-year growth of 47.5% and 32.7%, respectively. Additionally, the company’s management expects to grow its revenue by 20% annually in the medium term. Along with topline growth, the management also hopes to reach an adjusted EBITDA margin of 50% in the long term. So, considering its solid financials and high-growth prospects, I am bullish on Nuvei despite the uncertain outlook.
