Discover the Best TFSA Stocks for a Worry-Free Retirement

Canadian dividend stocks like Canadian National Railway (TSX:CNR) can make good TFSA holdings.

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Investing in a Tax-Free Savings Account (TFSA) is one of the best decisions you can make. TFSAs offer tax-free compounding just like Registered Retirement Savings Plans (RRSPs), but without the tax penalty upon withdrawal. This means that they let you keep a greater percentage of your gains than RRSPs do.

Canadians nearing retirement age are especially well advised to invest in TFSAs as they approach the age of mandatory RRSP withdrawals (71). When you’ve got only a few years to go before your mandatory withdrawals, RRSP contributions make less sense than they did in the past, because you can only enjoy a few years of tax-free compounding. In this article, I will explore the best TFSA stocks to own for a worry-free retirement.

CN Railway

Canadian-National Railway (TSX:CNR) is one of Canada’s best companies. It ships $250 billion worth of goods per year by rail. It also provides track for the passenger rail service Via Rail. Due to its strong competitive position (it only has one major competitor), CN Rail tends to have high profit margins. Its shares are among the best TFSA stocks you can own.

CN Railway has a lot of things going for it. It has a high profit margin (35%), a high return on equity (27%), and good long-term growth. In the trailing 12-month period, the growth was not so good, as a cooldown in the oil and gas market led to lower fees for crude-by-rail. That was not a CN-specific factor but rather a widespread trend affecting the entire rail industry. CNR should recover from this and bounce back bigger and better than ever.

Fortis

Fortis (TSX:FTS) is a Dividend King stock with a 4.4% yield and 50 consecutive years of dividend increases under its belt. Often considered a “best-in-class” Canadian utility, it has a payout ratio well under 100% and a 1.35 debt-to-equity ratio — the latter is good by the standards of utilities, which are heavily indebted as a class.

Over the years, Fortis has outperformed both the TSX index and the TSX utilities sub-index. How has it managed to do so? It’s done so largely by not sitting on its laurels. Utilities, if they don’t expand, are pretty easy businesses to run. The downside of this is that a lot of them deliver lacklustre returns, paying only a dividend and rarely rising in the markets.

Fortis has been more ambitious than the average utility over the years, investing heavily in expansion all over the Americas. As a result, it has performed better than the average TSX utility.

Alimentation Couche-Tard

Alimentation Couche-Tard (TSX:ATD) is a Canadian gas station company whose shares took a bit of a dip this year. The reason for the dip was that the company put out a disappointing series of earnings releases that showed declining revenue. It was looking grim for a while. However, ATD returned to positive revenue growth in the most recent quarter, with revenue up 8.2%. The increase in revenue was driven by higher fuel sales. Oil prices have been rising lately; if this trend persists, it will be a boon to ATD and its shareholders. Overall, Alimentation Couche-Tard is a very well-run company that investors can count on.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Canadian National Railway and Fortis. The Motley Fool has a disclosure policy.

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