The Tax-Free Savings Account, or TFSA, provides investors with the opportunity to shelter returns. Whether you earn interest, collect dividends, or make a capital gain, they are all tax-sheltered. These tax-free returns can be reinvested, creating powerful compound returns. The best Canadian stocks to buy in your TFSA are those that have strong income potential, and/or capital gains potential. The more investment returns that we can shelter from taxes, the better.
Enbridge
As one of North America’s leading energy infrastructure companies, Enbridge (TSX:ENB) has a lot going for it now and probably for a long time. Adding Enbridge to your TFSA will reward you with a very generous 5.89% dividend yield.
Since Enbridge’s business is a highly predictable one, it’s a yield that’s as safe and secure as they come. Let’s take Enbridge’s utilities business as an example. This business is government-regulated, and growing with North America’s growing energy needs. And if oil and gas worries you, well, Enbridge also has its renewables business, positioning the company well under different scenarios.
Enbridge is a stock to buy in your TFSA that will likely thrive for years to come — all while paying out a reliable and growing dividend. According to management, we can expect Enbridge’s dividend to achieve an up to 3% compound annual growth rate (CAGR) from 2023 to 2026, and an up to 5% CAGR post 2026.
Telus
Investing in Telus Corp. (TSX:T) may seem controversial right now. I mean, the company’s recent decision to stop its dividend-growth program has certainly made investors a little nervous. For me, the real question is whether Telus can continue to pay its current dividend. With a payout ratio of more than 200%, this might seem to be a tall order.
However, if we look at Telus’s cash flow generation, both current and expected, it tells a better story. Telus’s operating cash flow in its latest quarter was $3.7 billion. The company’s capital expenditures were $2.8 billion, and its dividend payments totalled $1.2 billion. This means that Telus’s operating cash flow was $320 million short. A small shortfall that management expects will be rectified with its growing cash flows in the years to come.
What it comes down to in the end is that a 9% dividend yield is a pretty good opportunity. A 9% dividend yield from a company like Telus is a once-in-a-lifetime opportunity. Sheltering this kind of dividend income from taxes in your TFSA is one of those smart moves that is likely to pay off in the long run.
BlackBerry
Companies that have the potential for outsized capital gains also have a place in a TFSA. Imagine tax-sheltering a stock that has appreciated more than 1,000% — pretty exciting, right?
With this in mind, let me draw your attention to BlackBerry (TSX:BB). BlackBerry is well-known, but not as well-regarded. Yet, what I see is a big opportunity in the making. Sure, BlackBerry stock does not have an impressive history. But let me show you some impressive facts about the company.
BlackBerry is the leader in the connected car market — a market that’s expected to see significant growth over the next many years. In fact, the company has a 90% market share of advanced vehicle software cars. But that’s not all, BlackBerry is also a leader in embedded or connected systems in other industries, such as medical technology.
In BlackBerry’s most recent quarter, we began to see its potential reflected in its financial results. In its QNX (embedded systems) segment, revenue increased 15%, and the company posted strong margins. Also, adjusted earnings per share (EPS) came in at $0.04, which was double last year’s result and well above expectations that were calling for EPS of $0.01.
And these are the facts that lead me to believe that BlackBerry is one of the best Canadian stocks to buy and hold in your TFSA. Tax-sheltered capital gains can make a real difference for your personal wealth. So, reserve stocks like Blackberry for your TFSA to take advantage of this.
The bottom line
The best Canadian stocks to buy for your TFSA have the best potential for outsized returns. This is how we maximize tax savings from our TFSA.
