By Robin Brown at The Motley Fool Canada
The TFSA (Tax-Free Savings Account) contribution limit has now increased by $7,000 for three consecutive years. That’s $21,000 of fresh contribution space where you can deposit cash, invest, and grow your capital 100% tax-free! Talk about an awesome opportunity!
The TFSA is one of the most flexible ways Canadians can grow their wealth without any tax consequences. If I had a $21,000 TFSA, here is how I would think about building a diversified portfolio of five stocks with $4,200 working in each.
A top dividend stock
Fortis (TSX:FTS) is a good dividend stalwart for any TFSA portfolio. You want one of these low-risk stocks during times of market volatility and turmoil. Fortis just steadily compounds total returns by a 7-9% annual rate.
It has a low-risk business model of nearly 100% regulated utility assets. It pushes out a steady stream of cash that has translated into 52-years of annual dividend increases.
Fortis is a low-beta stock, meaning its returns are not highly correlated with the market. With Fortis, collect a 3.2% dividend yield and slow (but steady) compounding of value over time.
A top blue-chip stock for a TFSA
Canadian Pacific Kansas City (TSX:CP) is a great Canadian blue-chip stock for a TFSA. This is a company that has been in business for over 145 years.
Having a single network that stretches across Canada, the U.S., and Mexico has unlocked substantial growth opportunities. Despite a tough freight environment, CP has been leading railroad performance across North America.
CP bought back 4% of its share last year and increased its dividend by 20%. For a nice mix of growth and capital returns, this is a solid stock to hold for decades in a TFSA.
A top Canadian bank
Royal Bank of Canada (TSX:RY) is another blue-chip stock worth holding in a TFSA. It has over 160 years of operation under its belt. It has built a banking franchise that ranks amongst the top banks in the world.
A key to its success has been a focus on its core competencies. It continues to take market share in retail and commercial banking, wealth management, and capital markets. If the economy does take a downturn, this is the bank to hold.
It has one of the best balance sheets, strong returns on equity, and a dominant brand. It yields 2.76% today and has a great record of growing its dividend.
A top tech stock for a TFSA
If you want a bit higher risk (but higher growth) in your portfolio, Descartes Systems Group (TSX:DSG) looks attractive. If you haven’t noticed, software stocks have been in the dumps. Descartes stock is down 38% in the past year.
Yet, there is a lot to like about this business. It has a highly competitive suite of services, including its entrenched global logistics network. This is backed by a company with +$300 million of net cash, strong margins, and a record of strong long-term returns. It’s trading at its lowest valuation in 10 years today.
A top small-cap stock
With a market cap of only $805 million, Calian Group (TSX:CGY) is a small-cap stock that could be a nice fit in a TFSA. This is one of the best ways to get exposure to defence spending in Canada. Over 50% of its business comes from defence.
Calian is an important provider of healthcare services, training, and satcom services to NATO and the Canadian military. It is targeting mid-teens growth in 2026.
With rising global defence spending, growth should continue to swell in the years ahead. Even after rising 28% this year, it’s still a reasonably priced stock at only 16 times earnings.
The post The Smartest Way to Deploy $21,000 in a TFSA in 2026 appeared first on The Motley Fool Canada.
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Fool contributor Robin Brown has positions in Calian Group and Descartes Systems Group. The Motley Fool recommends Calian Group, Canadian Pacific Kansas City, Descartes Systems Group, and Fortis. The Motley Fool has a disclosure policy.
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