The TFSA (Tax-Free Savings Account) contribution limit has now increased by $7,000 for three consecutive years. That’s $21,000 of fresh contribution space where you can deposit cash, invest, and grow your capital 100% tax-free! Talk about an awesome opportunity!
The TFSA is one of the most flexible ways Canadians can grow their wealth without any tax consequences. If I had a $21,000 TFSA, here is how I would think about building a diversified portfolio of five stocks with $4,200 working in each.
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A top dividend stock
Fortis (TSX:FTS) is a good dividend stalwart for any TFSA portfolio. You want one of these low-risk stocks during times of market volatility and turmoil. Fortis just steadily compounds total returns by a 7-9% annual rate.
It has a low-risk business model of nearly 100% regulated utility assets. It pushes out a steady stream of cash that has translated into 52-years of annual dividend increases.
Fortis is a low-beta stock, meaning its returns are not highly correlated with the market. With Fortis, collect a 3.2% dividend yield and slow (but steady) compounding of value over time.
A top blue-chip stock for a TFSA
Canadian Pacific Kansas City (TSX:CP) is a great Canadian blue-chip stock for a TFSA. This is a company that has been in business for over 145 years.
Having a single network that stretches across Canada, the U.S., and Mexico has unlocked substantial growth opportunities. Despite a tough freight environment, CP has been leading railroad performance across North America.
CP bought back 4% of its share last year and increased its dividend by 20%. For a nice mix of growth and capital returns, this is a solid stock to hold for decades in a TFSA.
A top Canadian bank
Royal Bank of Canada (TSX:RY) is another blue-chip stock worth holding in a TFSA. It has over 160 years of operation under its belt. It has built a banking franchise that ranks amongst the top banks in the world.
A key to its success has been a focus on its core competencies. It continues to take market share in retail and commercial banking, wealth management, and capital markets. If the economy does take a downturn, this is the bank to hold.
It has one of the best balance sheets, strong returns on equity, and a dominant brand. It yields 2.76% today and has a great record of growing its dividend.
A top tech stock for a TFSA
If you want a bit higher risk (but higher growth) in your portfolio, Descartes Systems Group (TSX:DSG) looks attractive. If you haven’t noticed, software stocks have been in the dumps. Descartes stock is down 38% in the past year.
Yet, there is a lot to like about this business. It has a highly competitive suite of services, including its entrenched global logistics network. This is backed by a company with +$300 million of net cash, strong margins, and a record of strong long-term returns. It’s trading at its lowest valuation in 10 years today.
A top small-cap stock
With a market cap of only $805 million, Calian Group (TSX:CGY) is a small-cap stock that could be a nice fit in a TFSA. This is one of the best ways to get exposure to defence spending in Canada. Over 50% of its business comes from defence.
Calian is an important provider of healthcare services, training, and satcom services to NATO and the Canadian military. It is targeting mid-teens growth in 2026.
With rising global defence spending, growth should continue to swell in the years ahead. Even after rising 28% this year, it’s still a reasonably priced stock at only 16 times earnings.
