Investing in stocks through a Tax-Free Savings Account (TFSA) helps you earn tax-free capital gains and dividend income. Over the long term, this can make a substantial difference to your overall returns. Moreover, $21,000 is enough capital to build a diversified portfolio capable of generating meaningful long-term growth.
The best approach is to focus on adding fundamentally strong Canadian stocks with solid growth potential. By selecting companies with robust financials and growth prospects, you can create a TFSA portfolio that could deliver significant tax-free returns.
With this background, here are three stocks that Canadian investors could consider adding to their TFSA portfolios.
Source: Getty Images
Hydro One stock
Hydro One (TSX: H) could be a solid addition to your TFSA portfolio as it offers growth, steady income, and stability. The utility company operates a defensive business model with regulated cash flows. Moreover, its regulated electricity transmission and distribution assets remain immune to the risks associated with power generation and commodity price volatility. This operating structure ensures resilient, low-risk earnings and predictable cash flows, supporting its share price and higher dividend payments.
Thanks to its consistently strong financial performance and growth prospects, Hydro One stock has increased by approximately 96% over the last five years. Moreover, it has consistently increased its dividend over the past eight years.
The company projects its rate base to grow at a compound annual growth rate (CAGR) of 6% through 2027. This will lead to a 6–8% increase in its earnings, supporting a projected 6% annual dividend increase. Further, Hydro One’s robust balance sheet and strong internally generated cash flows position it well to pursue growth opportunities while maintaining its low-risk profile. Moreover, tailwinds from rising electricity demand provide significant growth potential.
Dollarama stock
Dollarama (TSX: DOL) is another top bet offering growth, stability, and income. This leading discount chain operator provides an extensive range of consumable products at low, fixed price points. Its broad product range and value pricing strategy drive customer retention and traffic, supporting its financials, share price, and dividend payments.
Despite its defensive business model, the retailer has outperformed the broader market in terms of capital gains. Moreover, it has rewarded shareholders with higher cash. Over the past five years, Dollarama’s share price soared about 246%, reflecting a CAGR of over 28%. Further, it has raised its dividend 14 times since 2011.
Dollarama is poised to maintain its growth streak despite macro uncertainty. Its low pricing strategy, wide product range, and strong supply chain will continue to support revenue and earnings. Moreover, new store openings and international expansion will accelerate its growth, drive dividend payments, and support its share price.
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is a reliable stock to consider in your TFSA. It offers steady income and solid capital gains. This oil and gas producer has never cut its dividend and has increased it for 25 consecutive years. Over that period, its dividend grew at a CAGR of 21%.
CNQ’s growing payouts reflect management’s commitment to return value to its shareholders and its diversified portfolio of long-life, low-decline assets, which generate resilient cash flows. Beyond dividends, CNQ has delivered solid capital gains. Over the past five years, the stock has grown at a CAGR of approximately 40.3%, delivering overall capital gains of more than 444%.
Looking ahead, CNQ will benefit from high-quality production assets and low replacement costs, giving it a strong operational foundation. Its production is diversified across multiple types of crude oil and natural gas, allowing CNQ to strategically allocate capital to the areas with the highest potential returns.
In addition, CNQ’s portfolio includes low-risk, conventional projects that are quick to develop and require minimal capital. These projects can generate attractive returns when market conditions are favourable. In addition, Canadian Natural holds a vast undeveloped land base, offering years of repeatable drilling opportunities. This extensive resource base positions CNQ to continue creating value for its shareholders.
