The Canadian government launched a tax-free savings account (TFSA) in 2009 to encourage its citizens to save more. It allows Canadians to earn tax-free returns on a specified amount, known as a contribution limit. For this year, the Canadian Revenue Agency (CRA) has fixed the contribution limit at $7,000, while the cumulative limit for a person who was 18 years and above in 2009 could be $102,000.
However, investors should be cautious, as a decline in the stock value invested through their TFSA and subsequent selling could result in a reduction of their cumulative contribution limit. Therefore, investors should add quality stocks with solid financials and healthy growth prospects to their TFSA. Against this backdrop, I believe the following two Canadian stocks are ideal additions.
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Dollarama
Dollarama (TSX:DOL) is a discount retailer operating 1,616 stores across Canada, with 85% of Canadians having at least one store within a 10-kilometre radius. Due to its superior direct-sourcing model, the company eliminates intermediary expenses and enjoys higher bargaining power. Additionally, its efficient logistics system also helped lower its costs, enabling it to offer a wide range of consumer products at competitive prices. Therefore, the company experiences healthy foot traffic regardless of economic cycles or broader market conditions.
Boosted by these healthy same-store sales and aggressive store expansions, the company has consistently strengthened its financial performance. Over the last 14 years, its revenue and net income have grown at a compound annual growth rate (CAGR) of 11.4% and 17.9%, respectively. Additionally, its EBITDA (earnings before interest, taxes, depreciation, and amortization) margin has expanded from 16.5% to 33.1%. Supported by this healthy performance, DOL stock has returned over 4,300% in the last 15 years at an annualized rate of 28.8%.
Moreover, Dollarama is growing its footprint and expects to achieve its targeted store count of 2,200 by the end of fiscal 2034. The company also has a healthy presence in Latin America through its 60.1% stake in Dollarcity, which operates 632 discount stores across the region. Dollarcity has aggressive expansion plans and anticipates increasing its store network to 1,050 by the end of fiscal 2032. Dollarama can also increase its stake in Dollarcity to 70% by exercising its option.
Along with these growth initiatives, the company is also working on venturing into the Australian retail market by acquiring The Reject Shop, which operates 390 discount stores, for $233 million. Dollarama’s management anticipates completing the deal in the second half of this year. Considering its solid historical performance and healthy growth prospects, I am bullish on Dollarama.
Waste Connections
The second Canadian stock I am bullish on is Waste Connections (TSX:WCN), which collects, transfers, and disposes of non-hazardous solid waste. Along with organic growth, it has made several acquisitions to venture into new markets and enhance its financial performance. Since 2020, the waste management solutions provider has completed over 110 acquisitions, outlaying $6.5 billion. Despite these acquisitions, the company has managed to improve its adjusted EBITDA margin over the years, reaching 32% in the recently reported first-quarter earnings.
Supported by this solid financial performance and business expansions, the waste management company has returned over 500% in the last 10 years at an annualized rate of 19.8%. Moreover, the company is developing 12 renewable gas plants, which it anticipates will contribute $200 million to the company’s annual adjusted EBITDA once they become operational in 2026. Additionally, management anticipates above-average acquisition activities this year, given its robust cash flows and strong financial position. WCN has also raised its dividends at an annualized rate of 14% since 2010. Considering all these factors, I believe WCN would be an excellent addition to your TFSA.
