A Tax-Free Savings Account, or a TFSA, is an excellent tool for meeting long-term financial goals like retirement. Since capital gains, interest, and dividend income earned in a TFSA are not taxed, the real return is significantly enhanced in the long term. While one should leverage the TFSA contribution limit ($6,500 annual TFSA contribution limit for 2023 and cumulative contribution room of $88,000) to invest, focusing on stocks can significantly maximize your gains.
Against this background, I’ll focus on two fundamentally strong Canadian stocks with the potential to deliver solid stellar tax-free capital gains and dividend income.
goeasy
Growing at a CAGR (compound annual growth rate) of over 25% in the past five years, goeasy (TSX:GSY) could be a solid addition to your TFSA portfolio to generate significant wealth for your retirement. The company is growing rapidly and consistently enhances its shareholders’ returns through dividend hikes. Further, its valuation looks attractive, supporting my bullish outlook.
The company offers lending services to subprime borrowers. Thanks to its wide product range, large addressable market, and solid credit performance, goeasy’s top and bottom lines have consistently increased at a double-digit rate. For instance, its sales and earnings have sported a CAGR of 20% and 27%, respectively, in the past five years.
Thanks to its growing earnings base, goeasy has regularly paid and raised its dividend, which enhances the overall returns of its shareholders.
Looking ahead, its omnichannel offerings, high-quality loan originations, stable credit performances, and savings efficiency will likely support double-digit revenue and earnings growth. Meanwhile, goeasy stock is trading at a forward price-to-earnings multiple of 7.5, reflecting a discounted valuation from its historical average, providing a good buying opportunity.
Overall, greasy provides a double-digit earnings growth rate, low valuation, and decent dividend yield of 3.53% based on its closing price of $108.91 on June 8.
Dollarama
Dollarama (TSX:DOL) is another high-quality stock to add to your TFSA to create a significant retirement corpus. Shares of this value-priced retailer offer stability, income, and growth, making it an attractive long-term bet. Thanks to its defensive and high-growth business model, Dollarama has continually delivered improved sales. Further, it has delivered best-in-class margins and profitable growth over the past decade.
Dollarama’s impressive financial performance has driven its stock price higher. For instance, Dollarama stock has appreciated by over 597% in the past decade, significantly outperforming the broader market averages and multiplying its investors’ investments. Further, Dollarama has enhanced its shareholders’ value by increasing its dividend by 12 times since 2011.
Dollarama offers compelling value to consumers at low fixed price points. This indicates that the company could continue to produce solid sales and earnings amid all economic conditions. Furthermore, its extensive store base and ease of shopping will likely drive traffic. Also, its focus on expanding its footprint outside Canada augurs well for growth.
Overall, its low-risk business model, value pricing strategy, large network of stores, and focus on optimizing capital allocation to enhance shareholders’ returns make it a solid long-term pick.
