Investing in growth stocks is a strategy that might have taken a back seat for many Canadian investors. Recent years of stock market investing have been uncertain due to an onslaught of macroeconomic factors and recession jitters.
However, growth investing does not necessarily mean taking unnecessary risks in volatile stocks with a chance of securing short-term, outsized capital gains. It can also entail a patient, long-term strategy to secure wealth growth through slow and steady gains. Using stock market investing as a tool for long-term wealth generation can help you set yourself up for more financial freedom down the line.
Today, we will look at three TSX stocks you can consider for this purpose.
Canadian Pacific Kansas City
Canadian Pacific Kansas City (TSX: CP) is a giant in the North American railroad space, especially after the merger with Kansas City Southern on April 14, 2023. The $97.81 billion market capitalization stock has become a top contender for solid growth due to the development. The move puts it in a more competitive position in a largely consolidated industry with high barriers to entry.
While the company has a substantial debt it must manage in the next few years, the new product lines and synergies will undoubtedly help CP stock continue growing shareholder value. Analysts expect CP stock to achieve double-digit earnings per share (EPS) growth in 2024. As of this writing, it trades for $104.84 per share and pays its investors at a 0.72% dividend yield.
Royal Bank of Canada
Royal Bank of Canada (TSX: RY) is the largest among the Big Six Canadian banks and the biggest stock trading on the TSX in market capitalization. The $187.92 billion market cap stock serves over 17 million clients worldwide and is a stock worth considering as a long-term holding for several more reasons.
As of this writing, it trades for $134 per share, paying its investors at a juicy 4.11% dividend yield. It trades at 11.73 price-to-earnings and 1.69 times price-to-book ratios, suggesting that, while not cheap, it is trading at a fair price.
With a century and a half-long track record of financial stability, solid dividend-paying streak, modest growth, and high profit margins, it can be an excellent long-term holding for your self-directed portfolio.
Hydro One
Hydro One (TSX: H) is unlike the other two stocks, given that it has only been around for almost a decade. However, the $23.81 billion market cap renewable energy company has all the makings of a long-term growth stock.
Utility stocks are typically “boring” because bull markets do not necessarily inject outsized short-term capital gains. Hydro One stock negates the general trend in only a few years of trading on the stock market.
The clean energy industry is slated to grow substantially in the coming decades. Hydro One is among the leading providers of hydroelectric power, effectively growing shareholder value more rapidly than most of its utility industry peers.
As of this writing, it trades for $39.70 per share, paying its investors at a 2.99% dividend yield and up by 82.53% since it began trading on the TSX.
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Foolish takeaway
These three TSX stocks are among the safest investments you can buy and hold for the long run. Allocating adequate contribution room in your Tax-Free Savings Account can let you accumulate capital gains and dividend income without incurring income or capital gains taxes.
So, if you hold these stocks in your portfolio for two to three decades, they can help you with predictable wealth building.
