The Canadian equity markets have been upbeat over the last two months, with the S&P/TSX Composite Index rising 19.8% from its April lows. However, the rising geopolitical tensions and trade wars are a cause for concern. Therefore, investors should be careful while investing through their Tax-Free Savings Account (TFSA). A decline in the stock value of companies invested through a TFSA and subsequent selling would not only lead to capital erosion but also lower the investors’ contribution limit.
Against this backdrop, let’s look at three top Canadian stocks that I believe are ideal additions to your TFSA.
Waste Connections
Waste Connections (TSX:WCN) offers non-hazardous solid waste management services in Canada and the United States. It primarily focuses on the secondary and exclusive markets, thereby facing less competition and enjoying higher margins. The waste management solutions provider has expanded its business through both organic and inorganic growth. Since 2020, the company has acquired over 110 assets, outlaying $6.5 billion. Supported by these growth initiatives, it has experienced substantial financial growth, which has driven its stock price upward. Over the last 10 years, WCN stock has returned approximately 495% at an annualized rate of 19.5%.
Moreover, WCN is continuing with its acquisitions and has acquired assets that can contribute $125 million to its annualized revenue as of April 23. Given its healthy cash flows and solid financial position, management expects above-average acquisition activity this year. Additionally, the company is developing 12 renewable natural gas plants, which could become operational next year. These projects can contribute a cumulative $200 million to the company’s annualized earnings before interest, taxes, depreciation, and amortization (EBITDA). Along with these growth initiatives, the improvement in employee retention and safety performance could boost its profitability. Considering all these factors, I believe the uptrend in WCN’s financials will continue, thereby supporting its stock price growth.
Dollarama
Another ideal stock for your TFSA would be Dollarama (TSX:DOL), which operates 1,638 discount stores across Canada. Its superior direct-sourcing business model and efficient logistics have allowed the company to offer a wide array of consumer products at attractive prices. Therefore, the Montreal-based discount retailer experiences healthy traffic even during challenging macroeconomic conditions, which drives its sales. Additionally, its nationwide presence, broad customer base, solid execution, and implementation of technological advancements have supported its financial growth.
Moreover, Dollarama expects to increase its store count to 2,200 by the end of 2034. Additionally, it is expanding its footprint in Latin America through its subsidiary, Dollarcity, which operates 644 stores across the region. Dollaracity, where Dollarama owns a 60.1% stake, plans to increase its store network from 644 to 1,050 by 2031. Dollarama is also working on acquiring The Reject Shop, which operates 390 discount retail stores in Australia. Given its healthy growth prospects and solid underlying business, I believe Dollarama would be an excellent addition to your TFSA.
Hydro One
I have chosen a pure-play electricity transmission and distribution company, Hydro One (TSX:H), as my final pick. The electric utility company has minimal exposure to commodity price fluctuations, while 99% of its business is rate-regulated. It has expanded its rate base at an annualized rate of 5.1% over the last six years. Additionally, its productivity savings from cost-cutting and strategic sourcing initiatives have supported its financial growth, thereby driving its stock price growth. Over the last five years, Hydro One has delivered a total shareholders’ return of 124% at an annualized rate of 17.5%.
Moreover, electricity demand continues to rise amid growing awareness of pollution, favourable government policies towards electrification, and technological advancements, thereby driving the demand for Hydro One’s services. Amid an expanding addressable market, the company has been growing its rate base through its $11.8 billion capital investment plan. These investments could grow its rate base at a 6.6% compound annual growth rate (CAGR) through 2027. Therefore, I expect these growth initiatives could boost its financial performance, supporting its stock price growth. Additionally, H stock, which has raised its dividends for the last seven years at an annualized rate of 5.2%, could continue raising its dividends by 6% annually through 2027.
