The Canadian equity markets ended Monday’s trading session in the green amid easing tensions in the Middle East, following an announcement by United States President Donald Trump of a ceasefire between Israel and Iran. The Canadian benchmark index, the S&P/TSX Composite Index, rose 0.4% yesterday and is up 19.7% from its April lows. However, concerns persist about the impact of protectionist policies on global economic growth. Therefore, I believe investors should diversify their Tax-Free Savings Account (TFSA) investments in growth, dividend, and defensive stocks. Against this backdrop, let’s look at my three top picks for a TFSA.
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Celestica
Celestica (TSX:CLS), which provides design, manufacturing, supply chain, and platform solutions, is a compelling growth stock to add to your TFSA. The company posted an excellent first-quarter performance in April, beating its guidance. Its revenue rose 20% to $2.2 billion, while adjusted earnings per share (EPS) grew 44.6% to $1.20. A solid performance from its CCS (Connectivity & Cloud Solutions) segment, with the revenue from Hardware Platform Solutions growing by 99% to $1 billion, supported its topline growth.
Moreover, the growing adoption and usage of artificial intelligence (AI) have led hyperscalers to expand their infrastructure through aggressive investments in AI-related infrastructure. These investments have created multi-year demand growth for Celestica’s products and services. Additionally, the company continues to expand its product offerings through innovative product launches, meeting the growing needs of its customers. CLS stock trades at a reasonable valuation, with its NTM (next 12 months) price-to-earnings multiple of 1.4, making it an enticing buy.
Enbridge
I have chosen a top dividend-paying stock, Enbridge (TSX:ENB), as my second pick. The midstream energy company earns approximately 98% of its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) from a regulated tolling framework and long-term take-or-pay contracts. Additionally, the company’s financials have minimal exposure to fluctuations in commodity prices. It also earns around 80% of its adjusted EBITDA from inflation-indexed assets. Therefore, the company generates stable and reliable cash flows, allowing it to pay dividends for 70 years. Additionally, ENB stock has been increasing its dividends since 1995 at an annualized rate of 9%. It currently offers an attractive forward dividend yield of 6.1%.
Moreover, Enbridge continues to expand its rate base with annual capital investments of $9 billion to $10 billion. Also, the contribution from the recent acquisition of three utility assets in the United States could improve its debt-to-EBITDA ratio. Additionally, the company’s liquidity stood at $13.4 billion as of the end of its first quarter. Considering all these factors, Enbridge’s management expects to raise its dividend by 3% annually until 2026 and by 5% thereafter.
Fortis
Fortis (TSX:FTS) is a solid defensive bet due to its regulated and low-risk utility asset base. Most of the company’s assets are regulated, while 93% are involved in the transmission and distribution of electricity and natural gas. Therefore, the company’s financials are less prone to commodity price fluctuations and economic cycles, thereby delivering consistent returns. Over the last 20 years, FTS stock has delivered an average total shareholders’ return of 10.1%. It has also rewarded its shareholders by consistently raising dividends for 51 consecutive years and currently offers a forward dividend yield of 3.8%.
The Canadian utility company has been expanding through its $26 billion capital investment plan. These investments could grow its rate base at an annualized rate of 6.5% to $53 billion by the end of 2029. Additionally, the company expects to generate 70% of these investments from its operations and dividend reinvestment plans. Therefore, these investments won’t substantially increase the company’s leverage. Amid these growth initiatives, Fortis’s management anticipates a dividend hike of 4–6% annually through 2029, thereby making it an attractive addition to your TFSA.
