TFSA: 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Building a large, tax-free nest egg in your TFSA with growth stocks can give you more control over your tax bill in your retirement years.

| More on:
Dollar symbol and Canadian flag on keyboard

Image source: Getty Images

Building a sizable nest egg in your Tax-Free Savings Account (TFSA) can be arduous if you rely solely on dividend or conservative growth stocks. The yearly contribution limit of the TFSA has already reduced the total amount you can park in this account, so you have to make up for it with relatively robust growth stocks.

A retail chain

Montreal-based Dollarama (TSX:DOL) has a long and proud history. You can trace its origin back to the early twentieth century when it started out with a single store. Now, there are over 1,500 stores under the Dollarama banner and the company has grown its geographic footprint to include Peru. The company is on track to open 2,000 stores by 2031.

The footprint is impressive, and about 85% of the Canadian population lives within 10 kilometres of a Dollarama store. While the business model and reach are impressive, the most alluring part for investors is its growth history and potential.

The stock rose over 185% in the last five years alone, which is quite impressive for a company this size. The growth has been eerily consistent, especially considering that it included the unstable pandemic and post-pandemic markets.

Dollarama pays dividends as well, but the yield is too low. If the stock maintains this growth pace, it may double your capital in the next three years, giving your TFSA nest egg a significant boost.

An e-commerce stock

Even though many tech stocks in Canada offer amazing growth potential, Shopify (TSX:SHOP) is in a league of its own, or at least it was until the massive post-pandemic slump that pushed the value of the company down 83%. But even if we take that into account, the stock has grown over 2,100% since inception (nine years ago). That’s an annualized growth of about 233%.

Expecting similar growth in the future would be tall order, especially now when the company and tech sector as a whole is in a bearish phase. However, even the modest growth pace of this stock far outstrips most steady growth stocks.

It may be some time before the stock goes appropriately bullish, especially considering the weak outlook it proposed. But when that happens, the stock may propel your capital to new heights, especially if the growth pace is similar to its early days.

Foolish takeaway

The two stocks can help you build a solid nest egg in your TFSA, but they can also help you earn relatively short-term tax-free gains. So, even if you are not planning on holding the stocks long-term and wish to cash out at the end of the next bullish cycle, all your gains from the stock would be tax-free and won’t impact your tax bill if you stash them in your TFSA.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

More on Dividend Stocks

money cash dividends
Dividend Stocks

Build the Ultimate Passive-Income Portfolio With Just $10,000

Passive-income investors can hold GICs, dividend stocks, and dividend ETFs to create a stable stream of recurring income.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

1 Dividend Stock to Buy if the Bank of Canada Keeps Cutting Rates 

This dividend stock is sure to benefit from ongoing cuts in the key interest rate and is already seeing some…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

How Much Cash Do You Need to Quit Work and Live Off Dividend Income

Toronto-Dominion Bank (TSX:TD) pays a lot of dividend income. Can you live off of it in retirement?

Read more »

An analyst uses a computer and dashboard for data business analysis and Data Management System with KPI and metrics connected to the database for technology finance, operations, sales, marketing, and artificial intelligence.
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,398.40 in Passive Income 

This dividend stock offers a whopping 11.9% dividend yield right now, with returns that should fly high for this cyclical…

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

This 6.1 Percent Dividend Stock Is My Pick for Instant Income

Here’s what makes Transcontinental one of my top dividend stock picks right now for instant income.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

For a Shot at $5,000/Year in Passive Income, Buy 1,000 Shares of This TSX Stock

Do you know you can build passive income with TSX stocks? A $22,000 investment can give you a shot at…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

A new Canoe EIT Income Fund (TSX:EIT.UN) investment could earn almost 9% yield annually, and the monthly dividend stock has…

Read more »

RRSP (Registered Retirement Savings Plan) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

RRSP Wealth: 2 Great Dividend Stocks to Own for Total Returns

Dividend stocks like Fortis Inc (TSX:FTS) can be great additions to a well-diversified portfolio.

Read more »