TFSA Investors: Where Should You Invest $ 6,000 Today?

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Here are two TSX stocks that can generate significant long-term returns for your Tax-Free Savings Account (TFSA) portfolio. One of the choices may seem relatively risky due to its short-term challenges, but it offers decent growth potential. The second choice pays consistent dividends and offers stability. So the combination of these two goes well for diversifying risk and generating wealth in the long run.

Air Canada

Actions of the largest carrier in the country Air Canada (TSX: AC) crated over 65% amid pandemic weakness. In my opinion, the worst is over and the second half will bring a lot of good to the company.

Even though Canada’s travel regulations are one of the main issues for the company, they will likely soon be easier to follow global practices. Standardizing operations on a greater number of routes will significantly improve its revenue, ultimately increasing Air Canada’s inventory.

More importantly, what would you fly without Air Canada? The country’s peer airlines are far behind in terms of market share and are struggling even more. Due to the size of Air Canada, it has more ammunition to combat this serious crisis than its smaller peers. The standard bearer has witnessed a few disasters like this in the past and has come out stronger.

Air Canada management expects demand for air travel to reach pre-pandemic levels within three years. I think the stock will react much faster to some green shoots than that, mainly due to its current valuation and long-term growth potential.

Fortis

Top utility Fortis (TSX: FTS) (NYSE: FTS) is probably one of the most stable investments in Canada. It has managed to increase its dividends for the past 46 consecutive years. It is reporting 3.5% for the moment, in line with major Canadian markets. Management intends to increase its dividends by 6% per year over the next few years.

Fortis, worth $ 25 billion, operates in five Canadian provinces, nine US states and three Caribbean countries. Together, it serves nearly 3.3 million customers. The public service derives almost all of its profits from regulated activities. These large-scale regulated transactions allow stable and predictable earnings, which ultimately facilitates dividend stability.

Fortis is a slow growing company and one cannot expect higher returns from it in a shorter period of time. However, the stability of earnings and dividends it offers is truly unmatched. Over the past 10 years, Fortis has returned 170% including dividends.

Investors should note that utility stocks generally outperform in low interest rate environments. Investors look to lower risk stocks like utilities to generate higher returns. The increased volatility of larger stocks is also pushing investors towards safe assets like utilities.

All gains in the form of stock appreciation and dividends generated in the TFSA will be tax exempt, even at the time of withdrawal. An equal share of the TFSA contribution limit in these two stocks could generate solid returns over the long term. In particular, the two stocks are less correlated to each other and thus meet the needs of sector diversification and risk.

Speaking of TFSA investments …

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Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.

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