The Tax-Free Savings Account (TFSA) is one of the best ways to grow wealth tax-free, and it rewards patience and stability. This also means that choosing the right stocks today can make that long-term buy-and-hold TFSA a powerful income engine.
To make that happen, investors need the best Canadian stocks that can allow that compounding to happen. Fortunately, investors have plenty of solid choices available.
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Why the long-term buy-and-hold TFSA strategy works
A TFSA is built for long‑term compounding. That’s because all growth in the account, including capital gains, dividends, and interest, is completely tax‑free. This allows investors to reinvest every dollar earned without worrying about any tax drag.
Focusing on a long-term buy-and-hold TFSA also reduces the pressure of needing to time the market. Instead, investors just need to focus on investing in the right companies that can offer stable earnings and reinvested dividends.
So, which stocks can help investors kickstart that long-term TFSA growth?
Here are three options for that long-term buy-and-hold TFSA.
Option #1: Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is one of the largest independent crude and natural gas producers in Canada. The company also boasts a diversified portfolio of assets not just in Canada, but also in the North Sea and offshore Africa.
Canadian Natural’s portfolio benefits from a diversified asset base that includes natural gas, light and heavy crude, bitumen and synthetic crude. Across those segments, Canadian Natural benefits from low production costs and long-life assets, and this allows it to return cash to shareholders through dividends and buybacks.
Turning to dividends, Canadian Natural offers a quarterly dividend with a yield of 3.78% as of the time of writing. Even better, Canadian Natural has provided investors with handsome annual increases to that dividend going back nearly two decades.
For TFSA investors, Canadian Natural provides exposure to a sector that delivers strong returns over long cycles. This makes it an excellent addition to any long-term buy-and-hold TFSA.
Option #2: Canadian Imperial Bank of Commerce
The second option to consider in a long-term buy-and-hold TFSA is Canadian Imperial Bank of Commerce (TSX: CM). CIBC is one of Canada’s big bank stocks and offers a long history of stable earnings and reliable dividends.
One of the main advantages of the big banks is the diversified business model, which helps to support results across different economic cycles. In the case of CIBC, that includes personal and commercial banking as well as wealth management. The bank also has a concentrated U.S. presence in several markets, where it offers commercial-focused services.
As an income stock, CIBC offers a quarterly dividend yield of 2.82% as of the time of writing. The bank also enjoys a long dividend history stretching over a century, along with more than a decade of consecutive annual increases. This makes it a strong candidate for any long-term buy-and-hold TFSA.
Option #3: Fortis
Rounding out the three picks for a long-term buy-and-hold TFSA is Fortis (TSX: FTS). Fortis is one of the largest utility stocks on the continent, with operations in the U.S., Canada, and the Caribbean.
As a utility stock, Fortis is known for providing predictable earnings and long‑term dividend growth. A key reason for that is the sheer necessity of the services it offers.
Fortis generates those stable cash flows by providing essential services such as electricity and natural gas distribution. Those services are backed by long-term regulated contracts that often span decades.
That level of consistency has allowed Fortis to invest in growth and pay out its quarterly dividend. As of the time of writing, that dividend carries a yield of 3.30%, and Fortis has provided consecutive annual increases to that dividend for 53 years.
That streak makes Fortis one of only two dividend knights in Canada and solidifies Fortis as the defensive anchor for any well-diversified portfolio.
Final thoughts
No stock is without risk, which is why having a well-diversified portfolio is important. Fortunately, the trio of stocks mentioned above offer some defensive appeal in addition to their dividends and growth potential.
In my opinion, one or all of these should be core holdings in any long-term buy-and-hold TFSA.
