TFSA Investment Strategies: Top Canadian Companies to Add to Your Portfolio

A TFSA stock portfolio can be totally tax-free and more stable if holdings are limited to top Canadian companies.

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Tax-Free Savings Account (TFSA) users can unlock the true power of this versatile account by investing. Cash is king but not in a TFSA because it’s not a traditional or regular savings account. You lose the propensity to earn more if you hold more cash than income-producing assets like stocks.

However, a sound investment strategy to be entirely tax-free is to limit your holdings to domestic stocks. Foreign investments, including U.S. stocks, are allowed, but you pay a 15% withholding tax on them. The TSX has 11 primary sectors, so you have plenty of choices and room to diversify.     

Canadian Pacific Kansas City Limited (TSX:CP), or CPKC, and Brookfield Renewable Partners (TSX:BEP.UN) are top Canadian companies you can add to your TFSA portfolio if you don’t own them yet. The former merges two historic railways, while the latter is well-positioned to become the renewable energy vehicle of choice.  

Supports economic growth of 3 countries

CPKC combines Canadian Pacific (CP) and Kansas City Southern (KCS), two railroad companies with solid foundations and rich heritages. The $97.7 billion company has a tremendous advantage in creating North America’s first and only transnational rail network.

The 20,000-mile single-line rail network that connects Canada, the U.S., and Mexico and moves essential goods to support the economic growth of the three countries. According to management, CP and KCS are better together because of strategic port facility access, gateways with other Class 1 railways, and short-line connections.

CPKC transports Canadian and U.S. grain and grain products worldwide and is a critical link for delivering bulk products. On May 11, 2023, CPKC proudly launched the Mexico Midwest Express (MMX) Series premium intermodal service. It’s the first truck-competitive, single-line rail service option between the Midwest and Mexico.

Industry experts foresee the merger realizing around US$1 billion in annualized EBITDA synergies in the next three years. Moreover, CPKC’s top line could grow by an average of 8% to 10% over five years. The current share price is $104.92 (+4.12% year to date), while the dividend yield is a modest 0.72%.

Attractive growth profile

Brookfield Renewable Partners is a must-own stock for its attractive growth profile in the renewable energy space. The $18.9 billion company owns a diversified portfolio of high-quality renewable power assets (hydroelectric, solar, and wind). It provides distributed energy and sustainable solutions on five continents.

Furthermore, Brookfield Renewable’s support for global decarbonization should attract more ESG investors. Management believes the company has multiple levers to grow cash flows. The targets are 12% to 15% in total returns and an annual distribution growth of 5% to 9%.

In Q1 2023, the consolidated statement of operating results showed a 17.2% year-over-year revenue increase to US$1.3 billion. Notably, net income rose 436.4% to US$177 million versus Q1 2022. Besides the strong start to 2023, its CEO, Connor Teskey, said Brookfield Renewable is uniquely capable of executing large-scale power transformations.

Teskey adds that management will leverage its operating expertise and access to capital to generate attractive risk-adjusted returns for investors. At $42.25 per share (+24.83% year to date), you can partake in the 4.4% dividend yield.

Quality and stability

CPKC and Brookfield Renewable are ideal buy-and-hold assets for TFSA investors. Both stocks also add stability to any stock portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Renewable Partners and Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.

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