The Canadian government introduced the TFSA (tax-free savings account) in 2009 to encourage citizens to save more. The TFSA allows investors to earn tax-free returns on a specified amount called a contribution limit. Investors can benefit from adding quality stocks that can deliver multi-fold returns in the long term to their TFSAs. Meanwhile, here are my three top picks.
Dollarama
Dollarama (TSX:DOL) is a Canadian discount retailer with 1,569 stores. Around 85% of the country’s population will have a store within 10 kilometres. Given its superior direct sourcing and buying capabilities and efficient logistics, the company can deliver a wide range of consumer products at attractive prices. So, it continues to enjoy healthy same-store sales even during a challenging macro environment, driving its financials.
Since fiscal 2011, the company has grown its top and bottom lines at an 11.5% and 18% CAGR (compound annual growth rate). Besides, its adjusted EBITDA margin has expanded from 16.5% in fiscal 2011 to 32% in fiscal 2024. Meanwhile, I expect the financial growth to continue as the company plans to increase its store count to 2,000 by fiscal 2031. Given its capital-efficient business model, quick sales ramp-up, and lower payback period, these expansions could boost its top and bottom lines.
Further, Dollarama recently raised its stake in Dollarcity, a Latin American value retailer, from 50.1% to 60.1%. Dollarcity also updated its expansion plans and hopes to add over 500 stores over the next six years to increase its store count to 1,050 by fiscal 2031. Considering its growth prospects and solid financials, I believe Dollarama would be an ideal buy for your TFSA.
Waste Connections
Waste Connections (TSX:WCN) is a waste management company that collects, transfers, and disposes of non-hazardous solid wastes. It operates in secondary and exclusive markets in the United States and Canada, thus facing lesser competition and enjoying higher margins. Meanwhile, the company has expanded its footprint through organic growth and strategic acquisitions. As of July 24, the company had acquired 18 assets this year, which could contribute $500 million to its annualized revenue.
The waste management company also expects its merger and acquisition activities to continue in the second half, which could contribute an additional $150 million to its annualized revenue. Besides, the company is building several renewable natural gas and resource recovery facilities, which will become operational in the coming years. Given its healthy growth prospects and solid underlying business, I believe Waste Connections would be an excellent addition to your TFSA.
goeasy
goeasy (TSX:GSY), a subprime lender, has grown its revenue and diluted EPS (earnings per share) at an annualized rate of 20.2% and 28.1%, respectively, for the last five years. Meanwhile, the uptrend in its financials has continued, with the company posting revenue growth of 25% in the first six months, while its diluted EPS has increased by 14.4%. Despite its consistent performance, the company has acquired around 2% of the $218 billion Canadian subprime market. So, its scope for business expansion looks healthy.
Further, the Bank of Canada has slashed interest rates three times this year and could continue with its monetary easing initiatives. Falling interest rates could boost economic activities, thus driving credit demand and expanding goeasy’s addressable market. Meanwhile, the company continues to launch new products, strengthen its distribution channels, and improve its digital infrastructure to enhance customer experience. These initiatives could boost its loan originations and expand its loan portfolio, thus driving its financials.
Besides, goeasy is implementing improved underwriting and income verification processes and next-generation credit models, which could lower defaults and enhance profitability. It has also rewarded its shareholders by raising its dividends at an annualized rate of 30% since 2013. GSY offers a forward dividend yield of 2.5% and trades at 9.8 times analysts’ projected earnings for the next four quarters, making it an excellent buy.
