A Tax-Free Savings Account (TFSA) is an ideal instrument for building long-term wealth, allowing Canadians to earn tax-free returns up to a defined contribution limit. However, investors should be cautious when using a TFSA, as selling at a loss not only erodes capital but also permanently reduces their available contribution room. Against this backdrop, let’s look at three top Canadian stocks that I believe would be ideal for your TFSA.
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Dollarama
Dollarama (TSX: DOL) is a Canadian retailer that operates 1,665 discount stores across Canada and 395 stores in Australia. The discount retailer has adopted a superior direct sourcing model, which has removed intermediating expenses and strengthened its bargaining power. Its efficient logistics have reduced its costs, enabling it to offer a range of consumer products at attractive prices. Therefore, the company enjoys healthy same-store sales even during a challenging macro environment.
Additionally, the Montreal-based retailer is expanding its footprint and expects to reach 2,200 stores in Canada and 700 stores in Australia by the end of fiscal 2034. Given its cost-effective growth-oriented business model, minimal payback periods, and lower maintenance capex requirements, these expansions could boost both its top and bottom lines.
Additionally, the company owns a 60.1% stake in Dollararcity, which operates 658 stores across Latin America. With Dollarcity planning to expand its footprint to 1,050 stores by the end of fiscal 2031 and Dollarama’s option to increase its stake to 70%, I expect Dollarcity’s contribution towards Dollarama’s net income to grow in the coming years. Considering all these factors, I believe Dollarama’s financials will continue to trend higher, regardless of broader market conditions, making it an excellent addition to your TFSA.
Fortis
Fortis (TSX: FTS) is another stock I believe would be an excellent addition to your TFSA, given its highly regulated utility business. The company serves 3.5 million customers across the United States, Canada, and the Caribbean, meeting their electricity and natural gas needs. The majority of its assets operate in low-risk transmission and distribution businesses, with 99% falling under regulated frameworks. Therefore, its financials are less sensitive to economic cycles and market volatility, resulting in stable and predictable cash flows. Supported by these healthy cash flows, the utility has raised its dividend for 51 consecutive years and currently offers a forward yield of 3.4%.
Moreover, Fortis is expanding its asset base and has planned to invest $26 billion through 2029, growing its rate base at an annualized rate of 6.5% to $53 billion. Along with these expansions, the company’s improving operating efficiencies and favourable customer rate revisions could support its financial growth in the coming years. With solid growth prospects ahead, Fortis’s management anticipates raising its dividend by 4-6% annually through 2029, making it an attractive investment.
Waste Connections
Another excellent Canadian stock that I believe would be an ideal addition to your TFSA is Waste Connections (TSX: WCN). The waste management company posted an impressive third-quarter performance earlier this week, beating analysts’ expectations. Its revenue of $2.46 billion was above analysts’ expectations of $2.45 billion, and up 5.1% from the previous year’s quarter. Its adjusted EBITDA rose 5.45%, while adjusted EBITDA margin expanded by 10 basis points to 33.8%. Along with strong pricing retention, the decline in voluntary employee turnover and lower safety incident rates have boosted its financials.
Moreover, WCN is expanding its business through organic growth and strategic acquisitions. In the first nine months, the company has acquired several assets that could contribute $359.7 million to its annualized revenue. Additionally, the company has a robust pipeline of private company acquisitions that can support continued financial growth in the years ahead. Given its solid financials and healthy growth prospects, I am bullish on WCN.
