A Tax-Free Savings Account (TFSA) allows investors to earn tax-free returns – including both capital appreciation and dividend income – on investments made within the prescribed contribution limits. However, investors must exercise caution when investing through a TFSA, as losses on TFSA-held investments and subsequent selling can not only erode capital but also permanently reduce available contribution room.
Amid heightened volatility in Canadian equity markets – driven by ongoing geopolitical tensions and uncertainty surrounding the impact of protectionist economic policies on global growth – I believe investors should maintain a balanced approach by combining growth, defensive, and dividend stocks to optimize long-term return potential.
Against this backdrop, here are my three top picks.
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Celestica
Celestica (TSX:CLS) would be an excellent growth stock to add to a TFSA, given its exposure to the high-growth artificial intelligence (AI) market. As businesses transition from pilot AI initiatives to embedding AI across core operations – and as individuals increasingly adopt AI-powered tools – the demand for computing power continues to rise. To meet this growing demand, hyperscalers are accelerating investments to expand data centre capacity, creating a compelling long-term growth runway for Celestica.
Capitalizing on these industry tailwinds, the company is focused on launching innovative, higher-value products to strengthen its competitive position. Supported by its strong fourth-quarter performance, management raised its 2026 guidance, projecting revenue and adjusted earnings per share growth of 37.2% and 44.6%, respectively. Moreover, following a recent pullback, the stock is trading at more than an 18% discount to its all-time high, offering an attractive entry point for long-term, growth-oriented TFSA investors.
Hydro One
Given its pure-play electric power transmission and distribution business and minimal exposure to commodity prices, Hydro One (TSX:H) stands out as an excellent defensive addition to a TFSA. Approximately 99% of the company’s operations are rate-regulated, which shields its financial performance from market volatility and enables it to generate stable, predictable cash flows. Supported by this regulated structure, the steady expansion of its rate base at a compound annual growth rate of 5.1% since 2017 has strengthened financial performance and supported consistent share price appreciation. Over the past five years, Hydro One has delivered total returns of roughly 120%, translating into an annualized return of about 17%.
Looking ahead, rising electricity demand driven by ongoing electrification, the expansion of AI-ready data centres, and broader economic growth continues to expand Hydro One’s addressable market. To capitalize on these trends, the utility is advancing a $11.8 billion capital investment plan, which could grow its rate base at an annualized rate of 6% to $32.1 billion by 2027. Alongside this expansion, management expects adjusted earnings per share to grow at a 6%–8% annualized rate through 2027, while also targeting dividend growth of approximately 6% per year.
Enbridge
Enbridge (TSX:ENB) is an excellent dividend stock to add to a TFSA, supported by its contracted business model, strong cash flows, and attractive yield. Approximately 98% of the company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is generated from long-term contracts and regulated assets, while about 80% is inflation-indexed. This structure provides Enbridge with highly stable and predictable cash flows, enabling the company to pay and grow its dividend consistently. Enbridge has paid dividends for more than 70 years and has increased its payout for 31 consecutive years. Its quarterly dividend of $0.97 per share will translate into a forward yield of approximately 5.7%.
Looking ahead, Enbridge has identified nearly $50 billion in growth opportunities through the remainder of the decade and plans to support these initiatives with about $10 billion in annual capital investments. Alongside these growth projects, management expects to return $40–$45 billion to shareholders over the next five years through dividends and buybacks. Given its robust growth pipeline and strong cash flow profile, Enbridge appears well-positioned to sustain dividend growth, making it a compelling addition to a balanced TFSA portfolio.
