With a new year upon us, Canadians get a new $7,000 contribution to add to their Tax-Free Savings Account (TFSA). It may not seem like much. But, given the right stock investments and a lot of time to compound, $7,000 can become a substantial amount of cash.
Source: Getty Images
A $7,000 TFSA contribution could be worth over $40,000 in 10 years
If you earned a 10% average annual rate of return, $7,000 could be worth over $18,000 in 10 years. Increase your time frame to 20 years, and that $7,000 could be worth over $43,000.
This just demonstrates the wonderful power of compounding returns. When you don’t pay any tax in the TFSA, the compounding can work unabated. That is why it is such a great tool for investors.
If you are wondering what top-tier stocks to hold for a decade or two in a TFSA, here are three stocks to consider.
A software stock for the long run
Despite its $10.7 billion market cap, Topicus.com (TSXV:TOI) is not yet a well-known company in Canada. It primarily operates in Europe. Its home base is in the Netherlands. However, international expansion is fully in it grasp. Recent acquisitions in Southeast Asia testify to that.
Topicus is a serial acquirer of vertical market software businesses. The company has a unique combination of software development capabilities and a strong mergers and acquisition (M&A) platform. The companies it acquires tend to be cheap to buy but crucially essential to the industries they serve.
For the first nine months of 2024, revenues increased by 14%, and free cash flow increased by 49%. The company’s M&A engine has already been revving with some substantial European acquisitions.
If it can keep up this pace, 2025 could be a very good year for Topicus. That could make it a very good time to add Topicus to your TFSA now.
A financial stock with a nice dividend
goeasy (TSX:GSY) has been a long-term Canadian compounder. It is worth adding to a TFSA for a mix of income, value, and growth. goeasy has become one of Canada’s largest non-prime lenders.
The company has taken strong market share in the home equity, vehicle lending, and point of sales space. However, this year, it is expanding with a new credit card product. That could create a whole new market of growth for goeasy.
goeasy stock pays a 2.5% dividend yield. It has rapidly grown its dividend over the past decade. It also trades for less than 10 times earnings, making it a good value pick for a TFSA.
A top engineering stock for a TFSA
WSP Global (TSX:WSP) is a top-tier Canadian stock for a TFSA. Like Topicus, it has been a very acquisitive company. In fact, it has acquired its way to become one of the largest advisory and engineering companies in the world.
It has operations around the world and expertise across many crucial segments. Factors like global population growth, climate change, and technological transformation all mean demand for WSP’s services should remain elevated for years ahead.
WSP has grown revenues by a 16% compounded annual growth rate (CAGR) and earnings per share by a 13% CAGR. It’s a high-quality company worth a long-term hold in any TFSA.
