The Tax-Free Savings Account (TFSA) is a versatile wealth-building tool available to Canadians. However, published reports show the TFSA is significantly underutilized. Not all users fully realize the account’s true power.
The TFSA is not a cash vault. You miss out on tax-free growth if you simply store cash. Instead, you should hold income-producing assets, notably dividend stocks, for higher earning potential. Also, every dollar you withdraw is entirely tax-free.
If I had $10,000 available contribution room to work with in a TFSA right now, I’d implement a dual strategy of income and growth. Dividends provide immediate liquidity, while capital appreciation raises my TFSA’s value.
Source: Getty Images
Classic stability
Toronto Dominion Bank (TSX: TD) is my top-of-mind source of pension-like passive income. Canada’s second-largest bank has a 169-year dividend track record. At $144.17 per share, the dividend yield is 3%. Given the low 34.3% payout ratio, there’s ample room for dividend growth.
The $240.6 billion bank absorbed the hefty US$3 billion fine imposed by U.S. regulators two years ago in relation to an Anti-Money Laundering (AML) investigation. TD is currently prioritizing remediation work and addressing regulatory concerns to strengthen its money laundering controls.
Major acquisition plans in the U.S. are on hold until proper AML controls are in place. In October 2024, the Office of the Comptroller of the Currency (OCC) imposed a $434 billion asset cap on TD’s U.S. retail banking operations. The remediation timeline is until 2027. Nonetheless, TD delivered strong financial results in Q1 fiscal 2026.
In the three months ending January 31, 2026, net income increased 45% to $4 billion versus Q1 fiscal 2025. Also, during the quarter, adjusted net earnings reached a record $4.2 billion. There was sustained business momentum across the border as the income of the U.S. banking segment rose 627% year-over-year to $1 billion.
Performance-wise, TD is performing remarkably well. At its current share price, the year-to-date gain is 13.3%, while the trailing one-year price return is nearly plus-78%. The Big Bank stock remains a stable foundation in a TFSA portfolio.
Explosive growth
I’d pair 5N Plus (TSX: VNP) with TD in my $10,000 TFSA portfolio. Based on the 2025 TSX30 ranking, VNP placed 7th among the 30 top-performing Canadian stocks. At $33.57 per share, the total three-year return is plus-893%. Had you invested $5,000 in April 2023, your money would be worth $49,659.76 today.
The $3 billion company produces and develops specialty semiconductors and performance materials using proprietary technologies. Clients in key industries such as industrial, medical imaging, pharmaceutical, renewable energy, security, and space use the products.
Full-year 2025 was a record-setting year for 5N Plus. Net earnings climbed 244% to $50.6 compared to full-year 2024. As of year-end 2025, backlog reached $394.9 million, representing 353 days of annualized revenue. The strong demand in Specialty semiconductors is the catalyst for growth in 2026.
Sustaining self-engine
TD and 5N Plus form a sustaining self-engine. I get the best of both worlds: steady income streams and long-term wealth-building. Note that I mentioned $10,000 as the available contribution room. However, if you’re just starting, you split $7,000 in 2026 and add $1,500 in each stock in 2027. TFSA investors must not exceed the annual limit.
