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To encourage citizens to save money and keep it aside tax-free, the Canadian government established the tax-free savings accounts in 2009. Canadians over 18 years old can earn tax-free returns up to a certain amount, known as contribution space. The cumulative contribution room for Canadian adults has increased to $81,500 from 2009-2022.
Your investment can grow to $250,000 by investing your entire contribution amount in stocks that have a compound annual growth rate (CAGR), of approximately 15%. These are my top three choices that will deliver an average annual return of over 15% for the next eight year.
Algonquin Power & Utilities
My first priority is Algonquin Power & Utilities (TSX.AQN), which is exposed to low-risk utilities assets and an expanding market for renewable energy. The company’s solid financials and strategic acquisitions have resulted in a return of 304% over the last 10 years, at a CAGR rate of 15%. I anticipate that the uptrend will continue.
The company plans to invest approximately $4.3 billion in this year’s capital, including acquisitions of New York American Water Company (NYAC) and Kentucky Power Company (KYPC). The company expects to invest around $8 billion in its utility and renewable asset expansion from 2023-2026. Additional financial stability is provided by a solid utility business and long-term power purchase agreements to sell electricity produced from renewable facilities. The company could also benefit from the global shift to clean energy.
Supported by robust cash flows, Algonquin Power & Utilities has been raising its dividends for the last 12 years, with a forward yield at 5.42%. The price-to-earnings multiple for its next 12 months (NTM), currently stands at 17.2.
Waste Connections The company’s waste management business (TSX:WCN), has achieved an average annual return of more than 23% over the past 10 years. It operates in secondary and exclusive markets which results in less competition. The company focuses on strategic acquisitions in order to increase its market share and expand its presence.
The placement of disposal sites near waste generation can result in significant cost savings. Waste Connections currently has 71 municipal solid waste dumps, 12 exploration-and-production waste landfills and 15 nonmunicipal solid trash landfills. The company has signed long-term lease agreements with landfills it owns but operates.
Given the business’ essentials, its market share and acquisitions, I expect Waste Connections will continue to deliver solid financials and drive the stock price over the next few years.
With digitization and the shift towards remote work and learning, demand for reliable internet services has never been higher. In addition to all this, 5G has opened up long-term opportunities for telecom companies. Given its potential growth, I chose it. BCE As my last pick, I chose (TSX.BCE), one the three top telecommunications players.
The company has increased its investments in 5G and broadband services. Management at BCE hopes to offer 5G service to 80% Canadians by 2022 and add 900,000. More broadband connections are also planned. Revenue growth from the media segment due to the easing of restrictions could also drive BCE’s financials in the coming quarters.
BCE has increased its dividends by more than 5% over the past 14 years. Its forward yield is 5.81%. With a forward NTM Price-to-Earnings multiple of 18.6, it looks attractive. BCE’s attractive valuation, growth potential and high dividend yield make me expect it to return over 15% long-term.