The TFSA (Tax-Free Savings Account) is a cornerstone tool for Canadians looking to build wealth. All income earned in the account is safe from tax. By simply investing in the TFSA, you can save money and drastically improve your overall returns over time.
If I was starting fresh with a new TFSA, here are four Canadian stocks I’d happily hold as foundations for the portfolio going forward.
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CPKC: A foundational TFSA stock
Canadian Pacific Kansas City (TSX:CP) has been in operation for 145 years. This business has stood the test of time. Its railroad network spans across Canada, the U.S., and Mexico.
The network provides significant operating flexibility for customers. Despite trade wars and a weak freight environment, CPKC has continued to outperform the market.
The transcontinental railway is starting to generate strong cash flows, and its balance sheet has strengthened considerably. CP stock is starting to reward shareholders. Last year, it raised its dividend by 20%. This year, it raised it by 17.5%. It also completed a 4% share buyback in the year.
CPKC is targeting a mid-double-digit growth rate for the coming few years. It is not the cheapest railroad, but it is one of the best in North America.
Thomson Reuters
Speaking about another company with a long history, Thomson Reuters (TSX:TRI) could form a good foundation for a TFSA. This company has been operating in one form or another since 1851.
Thomson Reuters is a leading provider of legal, corporate, accounting, and tax software. It recently divested a portion of its print business to focus on its core software competencies.
The stock is down 40% in the past year. The market has been worried about AI disrupting its business. Yet, if anything, AI will accelerate new opportunities to sell its services. It is unlocking AI and a wide mix of tools to enhance customer offerings.
Thomson Reuters just delivered a solid quarter with high single-digit organic growth. The company has a strong balance sheet and an attractive 2.5% dividend. TRI stock has raised that dividend for 33 consecutive years.
Royal Bank: A leading Canadian stock for a TFSA
Royal Bank of Canada (TSX:RY) is a top Canadian stock for modest growth and income inside the TFSA. With a market cap of $400 billion, this is Canada’s largest stock and company.
Royal is a leading brand across Canada. It has strong franchises in retail, commercial and business, capital markets, and wealth management. Royal has stuck to its competencies and avoided mistakes that other bank peers have made.
The Big Six bank has strong returns on equity and a very healthy balance sheet. It pays a 2.5% dividend that has increased for 15 consecutive years. RY is not a cheap stock by any means today, so probably best to add it on a pullback.
Dollarama
A final foundational stock for any TFSA is Dollarama (TSX:DOL). This company has compounded incredible returns for shareholders. Its stock is up 214% in the past five years.
Dollarama is a leading discount retailer across Canada, Central America, and Australia. It has a great formula for producing above-average retail margins. Despite being a substantial company with a $50 billion market cap, it still has expansion opportunities in all of its core regions.
This is a great stock to hold through times of economic volatility. People need the daily essentials it sells. Dollarama has perpetually been a pricey stock. Its best to add on broader market pullbacks. However, the discount retailer forms a good backbone for a TFSA if you like steady, quality returns.
