The Tax-Free Savings Account (TFSA) is a fundamental tool for creating wealth from Canadian stocks. The TFSA spares you from reporting and paying any tax on income earned in the account. Not only does it save you a lot of hassle, but it can save you a lot of money too.
Every TFSA should have a few high-quality stocks that form the foundation of the portfolio. These three Canadian stocks have a fundamental place in my portfolio.
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A top tech stock for a TFSA
Descartes Systems Group (TSX: DSG) is a top stock if you want technology exposure. This $8.4 billion market cap company provides networking and software solutions for the global logistics industry.
Its network is a major advantage. In times of political upheaval, wars, and trade disruptions, companies join Descartes’ network to better manage their freight. Descartes simplifies global trade complexity, which saves customers time, effort, and money.
Descartes has exceptionally strong fundamentals. It is highly profitable (25% income margins) and produces significant amounts of cash. In its most recent second quarter, it grew revenues by 12% and earnings per share (EPS) increased 33%. It has a cash-rich balance sheet. Descartes has deployed over $250 million of capital into very attractive acquisitions this year.
If you want a well-managed company that is growing by a mid-double-digit rate, this is a great TFSA foundation. Its stock is down 18% this year. This makes for an attractive entry point.
A top blue-chip stock
If you want a blue-chip stock in your TFSA, Canadian Pacific Kansas City (TSX: CP) is a great addition. With a market cap of $108 billion, this is one of Canada’s largest companies.
Through its merger with Kansas City Southern, CP became the only rail network that extends across Canada, the United States, and Mexico. This wide network has provided considerable optionality to customers. Even through a tough freight economy, CP has been able to deliver sector-leading growth and profitability.
In its second quarter, revenues increased 13% and core EPS rose 13%. The company continues to target mid-teens EPS growth over the coming years.
With a drastically improved balance sheet, it has started to return more capital to shareholders. Last year, it bought back 4% of its stock and raised its dividend 20%. This year, it raised its dividend 17.5%.
The stock recently dipped on worries about greater trade tension between the U.S. and Canada. If you can look out beyond the next few years, it could be an interesting buying opportunity.
A top utility stock for a TFSA
AltaGas (TSX: ALA) is a final stock I’d put as a foundation in my TFSA. This $16 billion company provides investors a mix of income, growth, and defence.
More than 50% of AltaGas’s income comes from its U.S. regulated gas utility business. That provides a steady income stream for the business. This business is also growing at a strong high single-digit rate.
The remainder of its income comes from its midstream business in Western Canada. This segment is booming due to elevated Asian demand for liquefied petroleum gas (LPG). With multiple export terminals, it is Canada’s largest LPG exporter.
With tensions continuing to rise in the Middle East, AltaGas is enjoying a surge in demand. Currently, it has the benefit of higher prices and higher volumes. It raised its 2026 guidance as proof of its rising demand outlook.
AltaGas stock yields 2.6% today. It has raised its dividend every year for the past five years. It’s a great sleep-well-at-night stock for a TFSA.
