When deciding which stocks to buy for your Tax-Free Savings Account (TFSA), it’s important to remember that this is a long-term, tax-sheltered investment account. Every decision you make should aim to maximize returns while minimizing unnecessary risks. Today, let’s walk through some considerations and end with recommendations for four great Canadian stocks to buy and hold forever.
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What to consider
First, dividends should catch your attention. Dividend-paying stocks are especially attractive in a TFSA because their payouts are tax-free within this account. This makes them an excellent source of passive income, especially if you reinvest the dividends to compound your returns over time. Furthermore, growth potential is another key factor. While dividends are great, some companies prioritize reinvesting their profits into expansion, innovation, or acquisitions. These companies might not pay as much in dividends, but their stock value could rise significantly over the years.
You also want to look at a company’s position in its industry. Is it a leader, or is it struggling to keep up with competitors? Market leaders often have strong advantages, such as brand recognition, cutting-edge technology, or vast distribution networks. Investing in companies with strong market positions provides a level of confidence that they’ll remain profitable over the long term.
Another essential consideration is financial health. Before you buy a stock, look at its balance sheet. Does the company have manageable debt levels? Is it generating consistent earnings? There’s also valuation. Look for reasonably priced stocks relative to their earnings and growth prospects. With these factors in mind, here are four Canadian stocks you might consider buying and holding forever in your TFSA.
Stocks to watch
Royal Bank of Canada (TSX: RY) is a perennial favourite for Canadian investors, and for good reason. As Canada’s largest bank, it boasts a diversified revenue stream from personal and commercial banking, wealth management, and investment services. Its recent earnings were strong. Plus, it’s seen growth in net income and a consistent history of dividend increases. With a yield hovering around 4%, RY is a cornerstone stock for those seeking income and stability. Its leadership in the Canadian banking sector and ongoing investments in digital technology suggest it’s well-prepared for the future.
Enbridge (TSX: ENB) is another excellent option, especially for income-focused investors. It’s one of North America’s largest energy infrastructure companies, with a reliable pipeline business that generates steady cash flows. Enbridge has consistently paid dividends for decades, and it currently offers a yield above 7%. Its focus on expanding into renewable energy projects also provides growth potential for the future. With energy demand remaining robust, Enbridge’s infrastructure is indispensable.
Fortis (TSX: FTS) is a utility company that offers an almost unbeatable combination of stability and growth. As a regulated utility, its cash flows are predictable, and its history of over 50 years of dividend increases makes it a top choice for long-term investors. Fortis is currently expanding its renewable energy portfolio, which positions it well for a future that is increasingly focused on sustainability. Its recent earnings highlighted stable revenue growth and reaffirmed its commitment to increasing dividends by 4-6% annually.
If you’re looking for a company with an economic moat, Canadian National Railway (TSX: CNR) fits the bill perfectly. Rail transport is essential for North American trade, and CNR’s vast network gives it a significant competitive advantage. The company has a strong history of dividend payments and share price appreciation. Recent earnings were solid, showing growth in freight volumes and profitability. As global trade grows, CNR is poised to benefit, making it a great long-term hold.
