When it comes to investing in your TFSA, a lot of people treat it like a place to take big swings, looking for the next hot stock that can hopefully double or triple quickly.
And while that can work on rare occasions, it’s not how you build real long-term wealth.
The real power of a TFSA isn’t hitting one big trade or a few high-potential stocks; it’s the long-term compounding potential created by its tax-free nature.
It’s the perfect place to own high-quality businesses that can grow for years, reinvesting the income they generate and letting that tax-free growth build over time.
That’s why I don’t bother trying to find the next hot stock. Instead, I focus on finding companies that I can hold essentially forever.
And when it comes to my portfolio, the best “forever” stock I own has to be Brookfield Infrastructure Partners (TSX: BIP.UN).
Source: Getty Images
Why Brookfield Infrastructure is the perfect long-term TFSA stock
At its core, Brookfield Infrastructure owns assets that the global economy depends on every single day. These are businesses such as utilities, pipelines, data infrastructure, transportation assets, and more.
That already makes Brookfield a stock you can have confidence buying and holding in your TFSA. Its entire business model is built on owning assets that provide essential services.
Every time energy is transported, goods are moved, or data is processed, infrastructure like what Brookfield owns is being used.
So, Brookfield doesn’t need explosive growth or perfect economic conditions to succeed. As long as the world keeps functioning, these assets continue to generate cash flow.
On top of that, much of its revenue is backed by long-term contracts or regulated frameworks, which makes that cash flow highly predictable.
But in addition to its reliability, what really makes Brookfield one of the best Canadian stocks to own in your TFSA is how it grows.
The company isn’t just sitting back, operating its assets and collecting income. It’s continuously looking for opportunities to buy infrastructure that’s undervalued, improve it, and then either hold it or sell it at a higher value.
That cycle of buying, improving, and reinvesting is a huge reason why it’s been able to consistently grow over time. And it’s also why management targets long-term total returns between 12% to 15%.
Why it’s a company you’ll want to own forever
When you combine that type of consistently growing long-term business with the tax-free nature of the TFSA, that’s where the significant opportunity lies.
Brookfield Infrastructure already offers a solid yield of 5% at current market prices, and more importantly, it consistently increases its distribution over time.
So, not only are you generating passive income, but that income is constantly growing.
And because it’s inside a TFSA, every dollar of that income and every bit of capital appreciation is completely tax-free.
That’s where compounding really starts to take over. Not only are you not losing anything to taxes, but if you reinvest those distributions, your position just continues to grow over time.
Now, of course, it’s not completely risk-free; no stock is. Like most infrastructure companies, Brookfield uses debt to fund its assets, which means higher interest rates can create some pressure.
But the difference is that a large portion of its contracts are linked to inflation. So, as prices rise, its revenue often increases as well, which helps offset some of that pressure.
So, when you factor in the essential nature of its assets, the global diversification of its portfolio and its track record of recycling capital and expanding operations, there’s no question it’s a stock you’ll want to own in your TFSA for years.
It’s not a stock you buy expecting quick gains. It’s a business you own because you want an investment that can generate income and grow steadily for decades.
And for me, that’s exactly what I want in my TFSA. I’m not trading it. I’m holding it, reinvesting the income, and letting compounding do the work.
