TFSA: The Perfect Canadian Stocks to Buy and Hold Forever

Canadians should highly consider solid stocks to buy and hold in their TFSAs to target significant long-term wealth creation.

Kay Ng

Author Bio Kay graduated from the University of British Columbia with a Bachelor of Science in Computer Science and furthered her studies in financial markets, finance, and financial accounting. She began investing in dividend stocks in 2008, turning an early interest into a lasting passion. Over the years, Kay has refined her investment approach to focus on high-quality businesses, using fundamental analysis and valuation to identify long-term investment opportunities. Her investment research and articles have been featured in The Motley Fool, Sure Dividend, and Seeking Alpha. Outside of investing, Kay enjoys playing the piano, from popular songs learned by ear to challenging classical compositions. Her favourites include Fantaisie-Impromptu by Frédéric Chopin and La Campanella by Franz Liszt. Education Bachelor of Science (BSc) in Computer Science, University of British Columbia Further studies in financial markets, finance, and financial accounting Areas of Expertise Dividend stocks, fundamental analysis, company valuation, quality investing, long-term investing, business fundamentals, and identifying investment opportunities in high-quality companies. Social Media Profiles LinkedIn Favorite Investment Quotes “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett

Published October 21, 2024 11:00 am EDT

The Tax-Free Savings Account (TFSA) is one of the most powerful tools for Canadian investors, offering unique benefits that can significantly boost long-term wealth. With a contribution ceiling each year, it’s essential to invest wisely.

Any unused TFSA contribution room is carried forward, allowing investors to maximize their tax-free potential over time. While it can be tempting to use the TFSA for short-term financial goals, its real power lies in building wealth via a long-term investing philosophy.

By focusing on quality Canadian stocks that provide both attractive dividends and sustainable growth, investors can create a robust portfolio that flourishes over time. Below, we explore some of the best stocks to consider for your TFSA.

Two seniors walk in the forest — Source: Getty Images

Why invest for the long term?

Long-term stock market returns have consistently outperformed other asset classes, making stocks an excellent choice for wealth creation. Investing in stocks through a TFSA allows Canadians to earn income and capital gains without the hindrance of taxes, providing a distinct advantage for those focused on the future. The key to successful investing in a TFSA is prioritizing quality over quantity. By selecting stocks with proven track records, solid dividends, and potential for growth, investors can ensure their accounts grow at an above-average pace.

A strategic approach involves seeking out companies that have not only demonstrated resilience but also possess durable business models. These firms typically offer attractive dividends and are well-positioned to weather market fluctuations.

By holding these stocks for the long term, investors can benefit from compounding growth, further enhancing the tax-free advantages of their TFSA. Let’s take a closer look at two Canadian stocks that fit this mold.

Brookfield Renewable Partners L.P.

Brookfield Renewable Partners L.P. (TSX: BEP.UN) is a premier player in the renewable energy sector, focusing on hydroelectric, wind, and solar power. As a relatively safe investment within a rapidly growing industry, BEP stands out for its highly contracted revenues and quality cash flow generation. Approximately 90% of its cash flows are secured through long-term power purchase agreements, which span 13 years. This stability not only supports BEP’s impressive cash distribution but also provides a reliable income stream for investors.

With a 15-year cash distribution growth rate of 5.3%, Brookfield Renewable is a rare gem among Canadian renewable energy companies. Priced at $39.05 per unit, the stock offers a distribution yield of 5%, making it an attractive option for TFSA investors.

In times of market corrections, this stock presents an opportunity for investors to increase their positions and secure higher income for the long haul. Its commitment to sustainability and decarbonization aligns well with global energy trends, making it a compelling choice for those looking to invest for the future.

Manulife Financial Corp.

Another noteworthy stock to consider for your TFSA is Manulife (TSX: MFC), a leader in life and health insurance. Manulife has been consistently increasing its dividend since 2014, showcasing a 10-year dividend growth rate of 10.9%. Despite its recent surge, with shares rising 66% over the past year, Manulife still offers value for long-term investing, trading at $42.18 per share and providing a dividend yield of 3.8%.

With a price-to-earnings ratio of about 11.5, Manulife is reasonably valued, especially considering its projected earnings growth of around 8% annually over the next couple of years. Its payout ratio remains sustainable, estimated at 56% of diluted earnings and 43% of adjusted earnings for this year. This solid financial foundation makes Manulife a good choice for investors seeking both income and growth within their TFSA.

The Foolish investor takeaway

Utilizing the TFSA to invest in high-quality Canadian stocks can pave the way for significant long-term wealth creation. By focusing on companies like Brookfield Renewable Partners and Manulife, investors can take advantage of tax-free growth and stable income.

As you build your portfolio, remember that the key to success is patience and a commitment to holding quality stocks for the long haul. With wise stock picks and a long-term perspective, your TFSA can become a powerful vehicle for financial success.