For Canadian investors, a Tax-Free Savings Account (TFSA) is more than a tax-sheltered savings vehicle. It is an effective long-term investment tool that allows your money to grow tax-free. Any capital gains, dividends, or other investment income earned inside a TFSA are not taxed, helping your portfolio compound faster over time.
The 2026 TFSA contribution limit is $7,000. Although that may not seem like a large amount, investing regularly and allowing your returns to compound can significantly increase its value over the years.
One smart strategy is to buy and hold growth stocks with established dividend-paying companies inside a TFSA. While growth stocks can drive long-term capital gains, dividend stocks add stability and provide regular income that can be reinvested to enhance compounding over time.
Over the long run, the combination of a high-quality growth and dividend stock can potentially double, or even exceed, the $7,000 contribution.
With this backdrop, here are the top growth and income stocks to create a balanced TFSA portfolio.
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A top growth stock for your TFSA
MDA Space (TSX:MDA) could be a solid addition to your TFSA with the potential to significantly grow your investment over time. The company has outperformed the broader market over the past year, driven by the expanding global space economy. The significant government and commercial investment, along with rising opportunities in the defence sector, augur well for growth.
Its diversified business spans satellite systems, robotics, and geointelligence, giving it exposure to several fast-growing markets. Defence is becoming a key growth driver as governments increase military budgets and invest in space-based surveillance, communications, and security capabilities. MDA is well-positioned to capitalize on this trend with its advanced satellite technologies and geointelligence solutions.
The space technology company’s satellite business continues to gain momentum through communications satellites and next-generation constellations, while its robotics division stands to benefit from lunar exploration and orbital infrastructure projects.
MDA ended the first quarter of 2026 with a $3.7 billion backlog, providing strong revenue visibility, and management sees a potential $40 billion opportunity pipeline over the next five years. With expanding operations across North America, Europe, and Southeast Asia, MDA Space is well-positioned to deliver attractive long-term returns.
A top TSX stock offering growth, income, and stability
Hydro One (TSX:H) could be a solid addition to your TFSA for growth, income, and stability. As a regulated electricity transmission and distribution utility, the company generates predictable earnings and reliable cash flow without the risks associated with volatile commodity prices or power generation. This stable business model has supported consistent earnings growth, regular dividend increases, and steady long-term capital appreciation.
Since 2016, Hydro One has increased its dividend at a mid- to high-single-digit annual rate. The company also expects its rate base to grow by about 6% annually through 2027, providing a solid foundation for continued earnings and dividend growth.
Supported by a strong balance sheet, internally funded capital investments, ongoing grid modernization, and rising electricity demand, Hydro One is well-positioned to deliver dependable capital gains and higher dividends.
