The Tax-Free Savings Account (TFSA), for the savvier Canadian, is much more than a mere savings account. Introduced in 2009, the account type lets you keep all the earnings from any investments held in the account. This means you can generate interest income without incurring income taxes on it. Besides cash, you can use the account to hold other types of assets and earn tax-free income from them.
Investing in stocks and allocating a portion of your TFSA contribution room to build a self-directed portfolio might be the best way to leverage the tax-sheltered status of the account. Any capital gains or dividend income from stocks you own in a TFSA can grow your wealth tax-free.
Here are three growth-focused TSX stocks you can consider.
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Celestica
Celestica Inc. (TSX:CLS) is a $20.5 billion market-cap tech stock that offers supply chain solutions to its clients through two business segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). The stock’s foray into the Artificial Intelligence (AI) market is making it a more attractive investment to consider.
The CCS division at Celestica is going through substantial growth due to an increase in demand for networking hardware. The early signs of an industrial rebound might also see a big surge in business for its ATS segment. As of this writing, CLS stock trades for $177.93 per share, up by over 220% from its 52-week low. Despite delivering plenty of growth, it looks well-positioned to achieve much more in the long run. It might be a good investment to consider at current levels.
Dollarama
Dollarama Inc. (TSX:DOL) is a compelling investment to consider regardless of the market cycle. Dollarama is a $53.7 billion market cap company that owns and operates arguably the biggest discount store chain. Dollarama sells a wide range of everyday consumer products, seasonal items, and merchandise at fixed and low prices. This business model puts Dollarama in the unique position of being able to generate good cash flows even when the economy is down.
People look to cut costs when their financial situation isn’t ideal, and businesses like Dollarama offer them the perfect solution to meet their needs. Considering this, the business has been performing well across market cycles for several consecutive quarters. As of this writing, Dollarama stock trades for $193.94 per share. Up by 61.8% from its 52-week low, it might still be a good stock to buy at current levels.
Hydro One
Utility stocks are characterized as being boring investments that don’t offer much wealth growth through capital gains. These defensive businesses typically have a flatter graph compared to the rest of the market. However, there are growth opportunities to be found in even the most unlikeliest industries and Hydro One Ltd. (TSX:H) is the perfect example of that.
Hydro One is a $29.5 billion market cap company that owns and operates regulated energy transmission and distribution assets throughout Ontario. The company is the region’s largest electricity provider, serving almost 1.5 million customers. Since it doesn’t engage in producing electricity, the hydro producer has limited exposure to commodity price fluctuations and the overhead that comes with it.
As of this writing, Hydro One stock trades for $49.12 per share, up by 28.5% from its 52-week low. It also offers quarterly payouts at a 2.7% dividend yield that you can lock into your portfolio.
Foolish takeaway
The real key to success with stock market investing in a TFSA is with a balanced approach for the long run. Building a well-balanced portfolio that offsets potential losses from high-growth and high-risk investments through defensive holdings can help you turn your TFSA into a massive nest egg.
I would recommend focusing on the more boring investments first. This way, you can leave yourself with some room to balance things out with riskier investments that can inject some growth into your self-directed portfolio. To this end, CLS stock, DOL stock, and H stock can be excellent holdings to consider.
