Want Income and Growth? Here Are the Best TSX Stocks to Buy

Looking for income and growth? These two TSX dividend stocks could deliver substantial total returns in the coming years.

Robin Brown

Author Bio

Robin Brown has been a regular contributor to The Motley Fool Canada since January 2020. He began investing in 2009, during the depths of the global financial crisis, and has continued to refine his approach over the years. His investment philosophy emphasizes patience, quality, and identifying businesses with the potential to create lasting value. Robin currently lives in St. Albert, Alberta, where he manages a portfolio of Western Canadian industrial properties and private investments. Having lived in Canada, Norway, and Australia, he brings a broad perspective to his work and investing. Outside of work, Robin enjoys traveling, hiking, hunting, fishing, biking, and cooking for his wife, two daughters, and son.

Education

Bachelor's degree in Theology
Advanced Diploma in Business Management

Areas of Expertise

Dividend investing, value investing, quality stocks, small-cap stocks, long-term investing, business fundamentals, balance sheet analysis, capital allocation, industrial real estate, and private investments.

Social Media Profiles

Favorite Investment Quote

"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down." — Warren Buffett

Published August 7, 8:15 pm EDT

The TSX is full of stocks that earn income but also have attractive growth profiles. When you are looking for growth, you may have to sacrifice dividend yield to an extent. Companies that are growing often need to reinvest a larger portion of their profits to perpetuate that growth.

The best companies have a modest dividend payout ratio and yield. As they grow their earnings, they tend to increase their dividend in lockstep. Investors get the double whammy of a steadily rising stock price (based on profit growth) and a rising stream of income.

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TFI: A TSX transport stock about to hit a turnaround

TFI International (TSX: TFII) is a good example. This TSX stock has a modest dividend yield of 1.4%. However, it has delivered an attractive 656% gain over the past 10 years.

TFI provides freight, transport, and logistics solutions across North America. The company is known for a low-cost, efficient operating model supplemented by regular, strategic acquisitions.

Over the past 10 years, earnings before interest, tax, depreciation, and amortization (EBITDA) have increased by a 13.7% compounded annual growth rate (CAGR). Free cash flow per share has risen by a 6% CAGR. TFII stock has raised its dividend by a 14% CAGR over that time. It just increased its quarterly dividend by 4% last quarter.

Recently, the company has been stuck in a sluggish freight economy. However, it has used this to clean up operations, improve customer service, and improve network efficiency.

Coming out of the freight recession, it should see margins, earnings, and cash flow accelerate as it starts to add incremental volumes. The company could be positioned to make a large acquisition in 2027.

This is the TSX stock you want to hold before its earnings outlook really starts to improve (hopefully in 2027).

AltaGas: A TSX utility stock in growth mode

AltaGas (TSX: ALA) may not typically be associated with growth stocks. This TSX stock operates a regulated utility in the U.S. and a midstream export business in Canada. The company is firing on all cylinders this year. Its stock is up 103% in the past five years.

Its utility business has above-average, high single digit growth opportunities. AltaGas’ midstream business is seeing a massive wave of demand for liquified petroleum gases (LPG). The war in the Middle East has only accelerated Asian demand.

AltaGas raised its EBITDA and earnings per share guidance by 4% and 6%, respectively. Current guidance would project as much as 12% EBITDA growth over 2025. For a contracted, stable utility-like business, it’s a compelling growth opportunity.

The energy firm has several projects to expand its export capacity. These should be completed in 2027/2028. Each should provide a cash flow boost as the come online into full operation.

AltaGas yields 2.5% today. Since 2021, it has a record of growing that dividend by a 6% annual rate. This TSX stock has a target to grow its dividend annually by a 5–7% rate. ALA offers a nice combination of income and capital growth.

The Foolish takeaway

The TSX is full of stocks that provide a mix of growing dividend income and earnings growth. The combination of compounding stock value and compounding dividends can be powerful over a long period of time. Stocks like TFI International and AltaGas can offer exciting long-term prospects at compounding total returns.