Investing in shares of fundamentally strong growth and income stocks can help investors generate significant wealth over time. Moreover, investors can leverage the Tax-Free Savings Account (TFSA) to invest in Canadian stocks and optimize their capital gains and income over time.
The TFSA stands out for its tax benefits, implying all capital gains, dividends, and interest income generated within the account are completely tax-free. This advantage is valuable over the long term, allowing investors to compound their returns without the drag of taxation.
With this backdrop, let’s explore three Canadian stocks to buy and hold for the long run.
TFSA stock #1
goeasy (TSX: GSY) is a top stock to buy and hold in a TFSA for the long term. Its ability to grow its financials at a solid double-digit rate, consistent dividend payments and growth, and low valuation make it a compelling investment offering growth, income, and value.
goeasy is a leader in Canada’s subprime lending market. Its wide range of products, omnichannel offerings, and solid credit underwriting capabilities help the financial services company capitalize on the large addressable market and consistently grow its revenue and earnings. Notably, goeasy’s top line has seen a compound annual growth rate (CAGR) of about 20% in the last five years. At the same time, its earnings per share (EPS) increased at a CAGR of 28.6%.
Its growing earnings base has enabled the company to consistently pay dividends for about two decades and uninterruptedly increase them for 10 consecutive years.
Looking ahead, the momentum in goeasy’s business will likely be sustained, driven by higher loan originations, geographical expansion, diversified sources of funding, and stable credit performance. Further, goeasy will likely boost its shareholder value through higher dividend payments.
While goeasy’s EPS could continue to increase at solid double digits, its stock is trading at the next 12-month price-to-earnings (P/E) multiple of 9.6. This implies that goeasy stock is undervalued on the valuation front, providing a good buying opportunity for TFSA investors.
TFSA stock #2
TFSA investors could add Dollarama (TSX: DOL) stock to their portfolio for stability, growth, and income. This discount retailer has a defensive business model that consistently generates solid sales and earnings regardless of economic situations. This supports its share price and drives its dividend payout.
Dollarama sells products at low and fixed prices. Its value pricing strategy and focus on direct sourcing enable it to grow sales profitably consistently. Besides appealing to a broad range of customers, its large store base supports its top-line growth rate.
Dollarama stock has consistently delivered above-average capital gains. This trend will likely be sustained, given its growing sales, expansion of stores, and operational efficiency. Additionally, the company has increased its dividend 13 times since 2011 and is expected to keep rewarding shareholders with higher payouts.
TFSA stock #3
Hydro One (TSX: H) is a must-have stock in a TFSA for growth, income, and stability. The utility giant’s defensive business and ability to consistently increase its earnings enables it to outperform the broader market with its capital gains and reward its shareholders with higher dividend payments.
Hydro One is an electric power transmission and distribution company that is not exposed to power generation and commodity price volatility. This helps the company generate low-risk earnings and predictable cash flows in all market conditions.
Looking ahead, Hydro One focuses on growing its rate base by 6% annually through 2027. This will drive its earnings at a CAGR of about 5-7% during the same period and support higher dividend payments.
Overall, its low-risk business, growing rate base, steady earnings growth, and solid balance sheet position it well to deliver attractive capital gains and regular income.
