Equity markets have become volatile over the last few weeks amid uncertainty over the impact of protectionist policies on global growth. Given this outlook, young investors should exercise caution when adding stocks to their tax-free savings accounts (TFSA). A decline in the price of a stock acquired through a TFSA could lead to capital erosion and lower contribution room. Against this backdrop, here are my four top picks.
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Dollarama
Dollarama (TSX: DOL) is a discount retailer that operates 1,601 stores across Canada. Eighty-five percent of Canadian households have at least one of the company’s stores within a 10-kilometre radius. Supported by its superior direct-sourcing model and efficient logistics, the company can offer various consumer products at attractive prices, thus enjoying healthy same-store sales even during challenging macro environments.
Moreover, Dollarama has been expanding its store network and expects to increase its store count to 2,200 by the end of fiscal 2034. Further, it owns a 60.1% stake in Dollarcity, which operates 588 discount stores in Latin America. Meanwhile, Dollarama can increase its ownership to 70% by executing its option within 2027. Also, Dollarcity has plans to expand its store count to 1,050 by the end of fiscal 2031. These growth initiatives could boost its financials in the coming years, thus supporting its stock price growth.
Waste Connections
Second on my list is Waste Connections (TSX: WCN), which provides non-hazardous solid waste management services. It has been expanding its business through strategic acquisitions and organic growth, thus driving financials. The waste management firm completed record acquisitions last year, adding around $750 million to its annualized revenue. Besides, the company is building several renewable natural gas and resource recovery facilities, which could become operational in the coming years.
WCN also focuses on adopting technological advancements to improve its operating efficiency and employee safety. Further, it has improved employee engagement, thus lowering voluntary turnovers and driving operating margins. Considering the essential nature of its business and healthy growth prospects, I expect the rally in WCN’s stock price to continue, making it a worthwhile addition to your TFSA.
Fortis
Fortis (TSX: FTS) would be a top defensive bet to add to your TFSA due to its regulated asset base, low-risk electricity and natural gas distribution business, and expanding rate base. It operates 10 regulated utility assets, serving 3.5 million customers across the United States, Canada, and the Caribbean, thus generating stable and predictable cash flows.
Supported by these healthy cash flows, Fortis has paid dividends for 51 consecutive years and currently offers a forward dividend yield of 3.9%. Besides, it has delivered an average annual total shareholders return of 10.3% for the last 20 years. Moreover, the utility company plans to invest around $26 billion over the next five years, growing its rate base at an annualized rate of 6.5%. Also, it could benefit from falling interest rates, given its capital-intensive business. Amid these growth initiatives, the company’s management expects to raise its dividends by 4–6% annually in the coming years, making it an attractive buy.
Enbridge
Enbridge (TSX: ENB) is an energy infrastructure company that operates a pipeline network to transport oil and natural gas across North America. It also has substantial exposure to natural gas utility and renewable energy businesses. Given its regulated tolling frameworks, long-term take-or-pay contracts, and higher utilization rate, the company enjoys healthy cash flows, permitting it to pay dividends for 69 years. Also, the company has raised its dividends uninterruptedly for the previous 30 years and currently offers an attractive forward dividend yield of 6.2%.
Meanwhile, the Calgary-based midstream energy company has planned to invest around $8–9 billion annually to expand its asset base, supporting its financial growth. Besides, the contribution from its recently acquired three natural gas utility assets in the United States could also strengthen its cash flows and lower its business risks. The management expects the contribution from these acquisitions to bring its net debt-to-EBITDA ratio below 5. Given its healthy growth prospects and improving financial position, I expect Enbridge to continue its dividend growth, thus making it an ideal addition to your TFSA.
