The Canadian government introduced the TFSA (Tax-Free Savings Account) in 2009 to encourage Canadians to save more. It allows Canadians over 18 years to earn tax-free returns on investments up to a specified amount called a contribution room. Meanwhile, given the uncertain outlook due to higher interest rates, beginners should be careful while investing through TFSA, as the decline in stock prices could also lower their contribution room. Considering these factors, I am betting on the following three Canadian stocks.
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Waste Connections
Waste Connections (TSX: WCN) could be one of the most defensive stocks to have in your portfolio, given the nature of its business and its consistent returns. The company collects and disposes of non-hazardous solid waste materials in secondary or exclusive markets across the United States and Canada.
Since 2011, the company has acquired US$13.5 billion of assets, expanding its footprint across North America. Despite its aggressive acquisitions, the company has managed to maintain its EBITDA (earnings before interest, tax, depreciation, and amortization) margin of around 30%, which is encouraging.
Meanwhile, I expect the uptrend in WCN’s financials to continue amid solid operational execution, price-led organic growth, and continued acquisitions. The company’s management projects its 2023 revenue and adjusted EBITDA to grow by 11.6% and 12.6%, respectively. It is also hopeful of generating US$1.23 billion of cash this year.
So, it is well positioned to continue with its dividend growth. Since 2010, the company has raised its dividend at a CAGR (compound annual growth rate) of 15%, while its yield is currently at 0.5%. Considering all these factors, I believe WCN would be an ideal buy for TFSA in this uncertain outlook.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX: PZA) owns and operates Pizza Pizza and Pizza 73 branded restaurants through a highly franchised business model. Despite the challenging environment, the company continues to deliver solid financials. In the March-ending quarter, its same-store sales grew by 13.6%. Strong value messaging, promotional brand activities, and higher pricing drove its sales. The company also opened seven net new restaurants during the quarter, contributing to its sales growth.
Supported by its top-line growth, Pizza Pizza Royalty’s adjusted earnings from operations increased by 16.5% to $7.2 million. Amid its solid performance, the company’s management raised its monthly dividend by 3.6% to $0.0725/share, with its yield currently at 6.25%. The company continues constructing new restaurants and expects to increase its restaurant count by 3-4% this year. So, given its solid financials, highly franchised business model, and high dividend yield, I believe Pizza Pizza Royalty is an ideal buy for beginners.
WELL Health Technologies
Despite the volatile environment, my third pick is a high-growth stock, WELL Health Technologies (TSX: WELL), due to its solid financials and multi-year growth potential. Last year, the company’s revenue and adjusted EPS (earnings per share) grew by 88% and 228%, respectively. Along with organic growth, the company’s strategic acquisitions drove its financials. During that period, it had around 4.9 million patient interactions, representing a year-over-year growth of 86%.
Meanwhile, I expect the uptrend to continue, as WELL Health witnessed strong patient interactions of 1.4 million in the March-ending quarter at an annual run-rate of 5.6 million. It represented a year-over-year growth of 27%, driven mainly by organic growth. Further, the growing adoption of telehealthcare services has created a multi-year growth potential for the company. The company is also expanding its footprint across Canada, the United States, and Germany, making it an attractive buy.
