TFSA: 3 Top TSX Stocks for Your $7,000 Contribution

These stocks can help investors generate stellar tax-free capital gains and passive income.

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Blocks conceptualizing Canada's Tax Free Savings Account

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Canadians can leverage the TFSA (Tax-Free Savings Account) to invest in stocks and create wealth. One key advantage of a TFSA is that capital gains and dividends are not taxed. Thus, the TFSA amplifies the overall return in the long term.

It’s worth noting that The TFSA contribution limit is set at $7,000 for 2024. Canadians can leverage this investment limit to buy shares of fundamentally strong companies and generate tax-free capital gains and dividend income.

So, if you plan to invest in stocks via a TFSA, here are the top three Canadian stocks to buy now.

TFSA stock #1

TFSA investors could consider adding shares of the financial services company goeasy (TSX:GSY). It is a perfect stock for generating stellar capital gains and regular passive income. The company provides loans to subprime borrowers. Despite the higher potential risk associated with subprime lending, the company’s solid underwriting skills and broad product range enable it to generate impressive sales and earnings, which drives its stock and dividend payouts.

TFSA investors should note that goeasy’s revenue has a five-year compound annual growth rate (CAGR) of over 20%. Its earnings per share (EPS) grew at a CAGR of 32.2% during the same time. This stellar growth led to a 333.6% rally in goeasy stock over the past five years. Meanwhile, it consistently increased its dividend during the same period to enhance its shareholders’ value.

The financial services company’s omnichannel offerings, geographical expansion, large target market, and diversified funding sources will likely drive its loan portfolio and revenues in the coming years. Furthermore, its EPS growth rate could continue to exceed sales, driven by steady credit performance and operating efficiency. These positives will likely push goeasy stock higher. Moreover, goeasy could continue to increase its dividends every year in the long term.

TFSA stock #2

Loblaw (TSX:L) stock is a compelling investment for TFSA investors. Canada’s largest food and pharmacy retailer is known for its defensive business model and ability to deliver above-average returns. One of Loblaw’s key strengths is its ability to generate steady earnings regardless of economic cycles due to its recession-resilient business framework. This financial stability allows Loblaw to enhance shareholder value through regular dividend payments.

While Loblaw operates a defensive business, it has consistently outperformed the broader market. For instance, Loblaw stock has grown at a CAGR of 20.8% in the last five years, delivering an impressive capital gain of 158%. During the same period, it distributed regular dividends and repurchased shares.

Loblaw’s focus on offering value pricing, a wide product range, and measures to combat inflation are expected to drive consumers to its stores. Furthermore, the growing mix of private-label products and efforts to optimize its retail network will likely enhance its profit margins, supporting both the stock price and dividend payments.

TFSA stock #3

TFSA investors could consider investing in Celestica (TSX:CLS) stock. While the stock has appreciated significantly (about 305% in one year), it is still an attractive investment, considering its exposure to high-growth end markets and sectors with secular tailwinds.

The company is poised to benefit as hyperscaler companies grow spending on the adoption and deployment of artificial intelligence (AI) technology. Further, the ongoing shift towards electric vehicles (EVs) provides a significant base for growth for Celestica.

Overall, Celestica is likely to benefit from increased capex on AI and EV penetration. Moreover, its focus on strategic acquisitions and improving profitability could push its stock higher.

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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