I’m of the opinion that all Canadians should open a Tax-Free Savings Account (TFSA). As its name suggests, any gains generated in one of these accounts can be withdrawn tax free. That could help Canadians reach their financial goals much quicker.
In this article, I’ll discuss three popular Canadian companies that you should consider buying in a TFSA today.
Invest in the Canadian banks
If you’re starting from scratch, then consider investing in the bank you do business with. This is because the Canadian banks are very stable and established companies. The Big Five, in particular, have established very formidable moats, which will likely stand for decades to come. If you’re looking for a suggestion within that group, however, I would point out Bank of Nova Scotia (TSX:BNS).
This isn’t the largest bank of that group, but it does offer interesting growth potential. With a significant focus on its international growth, Bank of Nova Scotia has put itself in an excellent position to grow alongside the rapidly emerging economies within the Pacific Alliance. It’s projected that the economies within those countries could grow faster than that of Canada and the United States, where Bank of Nova Scotia’s peers tend to focus, over the coming years.
Look for solid dividend stocks
Another great benefit of investing in the Canadian banks is that they tend to offer attractive dividends. For those that are unfamiliar, dividend stocks tend to pay a portion of the company’s earnings to investors on a regular basis. Some of the best dividend stocks around are able to raise those distributions over time, allowing investors to generate a source of passive income that can keep pace with inflation. If a company can grow its dividend for five consecutive years or more, it becomes known as a Canadian Dividend Aristocrat.
Of all the stocks listed as a Canadian Dividend Aristocrat, Fortis (TSX:FTS) stands out to me. This company holds the second-longest active dividend-growth streak in the country (49 years). Due to the nature of its business, Fortis is able to plan its dividend distributions years in advance. The company has already announced its plans to continue raising its dividend through to 2027 at a rate of 4-6%.
Here’s an underappreciated company
Finally, investors should make an effort to find underappreciated companies. Theoretically, those stocks could skyrocket in value once the market takes note of the value discrepancy. In my opinion, Alimentation Couche-Tard (TSX:ATD) is a stock that investors should take note of. If you’ve never heard of it, perhaps you’re familiar with the other banners this company operates under. That includes Mac’s, On the Run, and Daisy Mart to name a few.
Over the past five years, Alimentation Couche-Tard stock has gained nearly 150%. In addition, this stock offers investors a dividend that has grown nearly 10-fold since 2012 (about a 25% compound annual growth rate). With that in mind, Alimentation Couche-Tard should be attractive to growth and dividend investors alike. I think this could be a great stock to hold in a TFSA over the coming years.
