The Canadian Stocks I’d Be Most Comfortable Buying and Holding in a TFSA Forever

A Tax-Free Savings Account (TFSA) allows Canadians to earn tax-free income, including dividend payouts and capital gains, on eligible investments, making it a powerful tool for long-term wealth creation. Introduced by the federal government to encourage saving and investing, the TFSA has an annual contribution limit of $7,000 in 2026. For Canadians who were 18 years of age or older in 2009 and have never contributed, the cumulative contribution room currently stands at $109,000.

However, investors should be selective when choosing investments for their TFSA. Since withdrawals stemming from investment losses can permanently reduce a portfolio’s value, it is important to focus on high-quality companies with resilient business models, reliable cash flows, and strong long-term growth prospects.

Against this backdrop, I believe Dollarama (TSX:DOL) is an excellent stock to consider for a TFSA. The discount retailer benefits from a highly efficient direct-sourcing model that eliminates intermediaries, strengthens purchasing power, and helps keep costs low. Combined with its efficient logistics network, these advantages allow Dollarama to offer a broad selection of products at attractive prices. As a result, the company continues to generate healthy same-store sales growth across varying economic conditions.

Dollarama recently reported strong first-quarter results for fiscal 2027. Let’s take a closer look at the company’s performance and what it could mean for investors.

Dollarama’s first-quarter performance

Dollarama delivered a strong first-quarter performance for fiscal 2027 earlier this month, highlighting the resilience of its business model and continued growth momentum. Revenue rose 21.4% year over year to $1.9 billion, driven by same-store sales growth of 5.6%, the addition of 81 net new stores over the past four quarters, which expanded its Canadian store count to 1,719, and a $192.8 million contribution from its Australian operations. Same-store sales growth was supported by a 3.5% increase in transaction volumes and a 2% rise in average transaction size.

The gross margin declined by 30 basis points to 43.9%, primarily due to lower margins in Australia. However, the impact was partially offset by lower logistics costs and continued scaling efficiencies in Canada. Meanwhile, selling, general, and administrative (SG&A) expenses represented 16.5% of revenue, up 120 basis points from the prior-year period, largely reflecting higher operating expenses in Australia.

Despite these margin pressures, EBITDA (earnings before interest, taxes, depreciation, and amortization) increased 17.4% to $582.5 million amid topline growth. Meanwhile, the EBITDA margin declined by 100 basis points to 31.6% due to lower gross margins and higher SG&A expenses. Encouragingly, Dollarama’s 60.1% stake in Dollarcity contributed $51.2 million to net income, representing a 27.1% increase from the prior year. Supported by these gains, net income rose 10.4% to $302.3 million, while diluted earnings per share (EPS) increased 13.3% to $1.11.

With another quarter of solid revenue and earnings growth, let’s now examine Dollarama’s long-term growth prospects.

Dollarama’s growth prospects

Dollarama remains focused on growing its footprint, with plans to add 60 to 70 new stores annually. Over the long term, management aims to grow its Canadian footprint to 2,200 stores by the end of fiscal 2034 and expand its Australian store network to 700 locations. Given the company’s cost-efficient business model, rapid sales ramp-up at new stores, short payback periods, and relatively low maintenance capital requirements, these expansion initiatives should support sustained revenue and earnings growth.

The company is also investing in its logistics infrastructure to support future growth. Its new Calgary distribution hub, which is expected to become operational by the end of next year, should enhance supply chain efficiency and better serve stores across Western Canada.

In addition, Dollarama is positioned to benefit from the continued growth of Dollarcity, in which it holds a 60.1% ownership stake. Dollarcity plans to expand its store count from 752 to 1,050 by the end of fiscal 2031, which could drive higher earnings contributions to Dollarama. Dollarama also has the option to raise its ownership stake to 70% by the end of next year, which could provide further upside.

Given its resilient business model, disciplined expansion strategy, and multiple growth drivers, I expect Dollarama to continue delivering strong financial performance and attractive long-term returns for shareholders.

Investors’ takeaway

Dollarama shares have responded positively to the company’s strong first-quarter results, with the stock gaining 4.7% since the earnings release. Despite this recent rally, the stock still trades more than 10% below its all-time high, offering investors an opportunity to acquire a high-quality growth company at a discount to its peak valuation.

Given Dollarama’s resilient business model, strong financial performance, and multiple long-term growth drivers, I believe the recent pullback offers an attractive entry point for long-term TFSA investors.

The post The Canadian Stocks I’d Be Most Comfortable Buying and Holding in a TFSA Forever appeared first on The Motley Fool Canada.

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More reading

• How Investing $50,000 in These 3 Stocks Could Help You Reach $1 Million By Retirement
• TSX Today: What to Watch for in Stocks on Friday, June 12
• 2 Canadian Stocks With the Potential to Turn $100,000 Into $1 Million
• 3 Canadian Stocks That Look Undervalued and Worth Buying Right Now
• 2 Strong Stocks Worth Putting Your $7,000 TFSA Contribution Into in 2026

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Dollarama. The Motley Fool has a disclosure policy.