How to Earn $380 Per Month Tax Free for Life
Written by Aditya Raghunath at The Motley Fool Canada
Canadian investors can take advantage of the TFSA (Tax-Free Savings Account) to generate a steady stream of recurring income. Because income from a TFSA is exempt from federal taxes, you can grow returns by at least 10% each year and build long-term wealth.
Hold dividend stocks in your TFSA
The TFSA may hold a variety of qualifying investments such as bonds, stocks and exchange traded funds. While interest rates on bonds are rising and the asset class is reclassified as a fixed income vehicle, some blue chip dividend stocks traded on the TSX are offering investors generous dividend yields.
Additionally, you can use the dividend payouts to buy additional shares in the company and grow your earnings over time. Dividend stocks also allow investors to earn capital gains over time.
The cumulative contribution space in your TFSA is $81,500, which is enough to build a steady stream of dividend income each year. While it’s wise to have a diversified portfolio of around 15 stocks, I’ve identified three TSX blue-chip stocks to show how you can earn $380 in tax-free monthly income.
Enbridge
One of the largest Canadian companies on the TSX, Enbridge (TSX:ENB) is a diversified energy infrastructure company. The Company owns and operates oil pipelines, energy storage and transportation facilities, wind and solar farms, a regulated utility and natural gas pipelines. These cash-generating assets allow Enbridge to pay investors a forward yield of 6.55%.
Enbridge charges a fee to companies using its assets. Its cash flows are also hedged by long-term contracts that are linked to inflation. Due to predictable cash flows, Enbridge has increased dividends for 26 straight years.
It has set aside $13 billion for investments, which should result in higher dividend payouts in the near term. In fact, Enbridge expects to increase dividends by 3%-5% through 2023.
TC energy
Another midstream giant trading on the TSX, TC energy (TSX:TRP) has an expected return of 6.2%. It operates three energy infrastructure companies across North America.
After accounting for dividends, TC Energy stock has returned 13% annually to shareholders between 2000 and 2021. The company has grown its asset base from $25 billion to more than $100 billion, which has allowed it to increase its dividend from $0.80 per share to $3.60 per share over the period.
TC Energy’s portfolio of infrastructure assets and a $28 billion investment program would allow for continued dividend increases in 2022 and beyond. It remains optimistic about growth in each of its businesses over the next decade, making TC Energy’s stock a compelling bet right now.
Brookfield Renewable Partners
The final dividend stock on my list is Brookfield Renewable Partners (TSX:BEP.UN). Shares of the renewable energy giant are down 30% from all-time highs and have boosted its dividend yield to a tasty 4.1%.
The secular global shift toward clean energy solutions will be a massive tailwind for Brookfield Renewable Partners over the next three decades. Several governments have pledged to tackle climate change and drastically reduce CO2 emissions, increasing the need for renewable energy.
Brookfield Renewable is committed to gaining market share in the clean energy segment and has a development pipeline capacity of 69 gigawatts, which is 200% more than its current capacity.
The stupid snack
Investing $81,500 evenly across the three stocks allows investors to generate $4,565 in annual dividends, which translates to a $380 monthly payout. You can use this article as a starting point to identify similar blue-chip dividend stocks and build a robust portfolio of dividend giants.
“TFSA Passive Income: How to Earn $380 Per Month Tax Free for Life” first appeared on The Motley Fool Canada.
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Fool contributor Aditya Raghunath has positions at Brookfield Renewable Partners and ENBRIDGE INC. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.
2022