TFSA (Tax-Free Savings Accounts) investors will soon be able to make their portfolios larger. The TFSA contribution limit is expected to increase by $7,000 in 2025 (the same increase as in 2024).
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Another $7,000 to grow your wealth tax-free
That would make the total contribution limit $102,000 for Canadians who were 18 years old (or older) in 2009 and residents of Canada. This just means Canadians have ample opportunities to invest completely tax-free. Who wouldn’t want more room to invest and have no tax consequence?
If you are wondering what kind of stocks to own in a TFSA, here are two interesting examples of potential long-term winners.
This is (and likely will still be) an incredible TFSA stock
You don’t want to pay any tax on stocks that multiply many times over. One such stock is Constellation Software (TSX: CSU). Since its initial public offering (IPO), CSU stock is up 25,039%! The stock is up 228% in the past five years.
Over time, the company has become an expert acquirer of niche software companies. It has made nearly 1,000 acquisitions since inception. Now, it is becoming an expert at larger carve-outs and complex acquisitions. This has brought it a whole new leg of growth.
Another opportunity has been through its spin-out companies, Topicus.com and Lumine Group. These companies have geographic, or sector focuses that make them unique.
Constellation has used the spin-out model to elevate its pace of growth from larger acquisitions. It is likely to use its spinouts as further currency to grow in other areas as well.
Even though Constellation is a $97 billion company, it still has plenty of levers to support solid returns for a TFSA going forward.
A mid-cap stock for long-term returns in a TFSA
Constellation was once a $385 million company. Small- and mid-cap stocks can be a great place to look for substantial long-term returns in a TFSA. If you are looking for a stock that could provide similar strong gains, Propel Holdings (TSX: PRL) could be interesting.
Today, this prospective TFSA stock has a market cap of $1.4 billion. It is amazing to consider this company was only worth $330 million last year at this time.
Propel has been on a good run after a 287% gain over the past year. Its quick rise largely occurred because the company has outperformed expectations.
Propel provides small to medium loans to the non-prime consumer segment. It uses a proprietary A.I. platform to procure and underwrite loans effectively and quickly.
It started in the U.S., but now has expanded to Canada. It also announced plans to acquire a lender in the U.K. That could be the start of a strategy to expand into Europe and beyond.
The good news is that this TFSA stock still has plenty of opportunities to grow in its core markets alone. Over the past three years, it grew revenues by a 55% compounded annual growth rate (CAGR). Earnings per share grew even faster at a 57% CAGR.
With plenty of levers to pull in terms of growth and margins, this company could become substantially larger. Its valuation has increased significantly in 2024. If it can hit its 2025 growth targets, it could still be relatively cheap here.
Certainly, the lender operates in a more volatile segment (non-prime lending). However, if you can be patient, Propel could provide significant returns in a TFSA.
