For those interested in long-term investing, the TFSA (Tax-Free Savings Account) is the ideal place to hold stocks. The TFSA protects you from paying tax on any potential gains and income that can be accumulated over a long period. If you want to compound wealth, paying no tax and keeping all your accumulated wealth is crucial.
It is also crucial to own stocks that faithfully deliver solid returns. No stock ever goes up without some volatility in the short term. Look for stocks with strong track records of returns, invested managers, durable products/services, stable growth, and opportunities to re-invest.
Here are three reliable stocks worth holding in a TFSA for now and for a very long period of time.
Constellation Software: A TFSA compounder with more ahead
If you look at Constellation Software (TSX:CSU) stock over a 10-year period, it has delivered a very steady upward trajectory. Over the decade, it has compounded by a 33% annual growth rate. Over the past five years, it has compounded by just under 30%.
Unlike other tech stocks, Constellation does not have a flashy business. It acquires many niche software businesses that tend to have small TAMs (total addressable market), limited applications, and boring businesses. On their own, these are not exciting businesses.
Yet Constellation can acquire these at very attractive valuations. It uses best practices to maximize profitability and cash flows from these software businesses. Constellation then takes that cash and re-invests it into more niche businesses. It helps that there are thousands of potential acquisition targets around the globe.
This TFSA stock is almost never cheap. But so far, there has almost been no bad time to buy. If management can keep executing, this stock could continue to deliver for years ahead.
TFI International: Plenty more businesses to consolidate
TFI International (TSX:TFII) has been another stable, high performer that could be a solid hold for a TFSA. Over five and 10 years, it has earned respective 32% and 25% compounded annual growth rates (CAGR).
It operates over 80 businesses focused on courier, less-than-truckload, truckload freight, and logistics. These companies are spread across Canada and the U.S.
The company has been a master at consolidating a very fragmented transportation sector. It utilizes its operating and financial expertise to maximize margins and profits from these businesses.
TFI is a boring business that happens to be extremely well run. Its management team has aligned incentives with shareholders, and that is the type of structure shareholders want in a long-term TFSA hold.
Alimentation Couche-Tard: A stable business for a TFSA
Alimentation Couche-Tard (TSX:ATD) is another high-quality stock for TFSA investors. Over five and 10 years, it has compounded annual returns by 19% and 20.2%, respectively.
It operates a network of convenience stores, gas stations, rest stops, and car washes around the world. Its Couche-Tard, Circle K, and Ingo brands are synonymous with quick convenience.
Not only has the company been a smart consolidator of another very fragmented sector, but it is also taking many initiatives to grow organically. As it gets bigger, it can unlock economies of scale that should help enhance margins over time.
The company just announced a new plan to essentially double earnings over the coming five years. TFSA investors want a company that can continue to reinvest profits at high rates of return for long periods. It appears like Couche-Tard could be one of the quality stocks for a long-term hold.