Investing consistently in just two TSX stocks can be a savvy strategy for generating substantial passive income from a $30,000 Tax-Free Savings Account (TFSA) investment. But where should investors start? In my view, the best option is to do what the best investors are doing. And if you’re doing that, there are only two stocks worth buying.
Source: Getty Images
Buy like a billionaire
The two TSX stocks to consider match up with two of the best investors out there. These are the managers behind Fairfax Financial Holdings (TSX:FFH) and Constellation Software (TSX:CSU). Investors could do worse than investing like Prem Watsa and Mark Leonard, who have seen their companies achieve massive success over the decades.
Fairfax Financial Holdings, a diversified insurance and investment management company, has demonstrated impressive financial performance. In the second quarter of 2024, Fairfax reported net earnings of $915.4 million, translating to $37.18 per diluted share. This robust performance was primarily driven by increased adjusted operating income and net gains on investments.
Constellation Software, a leading provider of software and services to various industries, has also showcased strong financial results. The TSX stock has consistently achieved revenue growth through a disciplined acquisition strategy and strong cash flow generation. This approach has enabled Constellation to capitalize on industry shifts toward digital transformation, positioning it favourably for future growth.
Considerations
Historically, both FFH and CSU have delivered impressive returns to their shareholders. Fairfax Financial’s stock price has risen over 40% year to date, reflecting its strong financial health and effective management. Similarly, Constellation Software boasts a remarkable 10-year average annual return of about 35%, underscoring its consistent performance and growth potential.
Looking ahead, the future outlook for both companies remains positive. Fairfax Financial continues to strengthen its insurance and reinsurance operations, producing favourable underwriting results and growing premiums. The TSX stock’s strategic acquisitions, such as the purchase of Gulf Insurance, have further bolstered its market position.
Constellation Software’s disciplined acquisition strategy and focus on digital transformation trends position it well to capitalize on emerging market opportunities, supporting its long-term growth prospects.
Bottom line
Investing in these two companies through a TFSA offers the added benefit of tax-free growth, allowing investors to maximize their returns. By consistently investing in FFH and CSU, investors can build a diversified portfolio that balances stability and growth potential, creating a solid foundation for generating passive income over time. In fact, here is what investors could earn by putting $15,000 towards each of these stocks and seeing returns of 40% again from FFH and 35% from CSU.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | INVESTMENT |
| FFH – now | $2,061 | 7 | $15,000 |
| FFH – 40% | $2,885.40 | 7 | $20,197.80 |
| CSU – now | $4,708 | 3 | $15,000 |
| CSU – 35% | $6,355.80 | 3 | $19,067.40 |
That’s right; you could have returns totalling $9,265.20! Therefore, Fairfax Financial Holdings and Constellation Software represent compelling investment options for those seeking to generate passive income through a TFSA. These TSX stock’s strong financial performance, consistent growth, and positive future outlooks make them attractive choices for investors aiming to build wealth over the long term.
