TFSA Passive Income: How to Earn $360 Per Month for Decades

The market correction gives Tax Free Savings Accounts (TFSA) investors the opportunity to buy top TSX dividend stocks at bargain prices for a portfolio focused on high-yield passive income.

TFSA limit

The TFSA limit for 2022 is $6,000, bringing the total cumulative limit to $81,500. That’s enough room for retirees and other investors looking for passive income to build a significant portfolio of leading high-yield dividend stocks.

All income earned in the TFSA can be paid out tax-free. That means the gains don’t put an investor in a higher tax bracket. It is also important for people receiving Old Age Insurance (OAS) annuities. The Canada Revenue Agency (CRA) introduces an OAS reclaim when world net income exceeds a minimum threshold. Most seniors cannot afford to lose part of their OAS payment, so TFSA income is especially important. The CRA does not consider TFSA income in determining OAS annuity claim tax. For the 2022 income year, the number to keep an eye on is $81,761.

Guaranteed Investment Certificate (GIC) rates are rising, but high-quality, high-yield dividend stocks remain attractive. The best companies to buy have good track records of dividend growth and stock prices that tend to trend higher over the long term.

TD Bank

TD (TSX:TD)(NYSE:TD) is Canada’s second largest bank with a market capitalization of US$153 billion. The stock is down significantly in 2022, falling from a high near $108 in February to the current price near $84. Sharp declines in TD’s stock price have historically proven to be good buying opportunities for income investors as well as those looking to generate attractive total returns.

A $10,000 investment in TD stock 25 years ago would be worth about $115,000 today. That jumps to $185,000 with dividends reinvested.

TD increased its dividend at a compound annual rate of about 11% during that period. Investors should see the generous payout growth continue. TD is a good stock to buy if you’re looking to invest in the US economy through a leading Canadian bank. The bank makes two acquisitions in the United States to boost long-term revenue growth. The $13.4 billion purchase of First Horizon will make TD a top 6 bank in the US market. TD also shops Cowenan investment bank, for $1.3 billion.

Investors who buy TD shares at current levels can earn a dividend yield of 4.2%.

Enbridge

Enbridge (TSX:ENB)(NYSE:ENB) is a good stock to buy for reliable income with a high yield. The board has increased the dividend for each of the last 27 years, and the current payout delivers a dividend yield of 6.4%.

Enbridge stock is now below $54 per share. At the beginning of June it was $59.50. The withdrawal seems excessive given the nature of the revenue stream. Enbridge does not produce oil or natural gas and is therefore largely unaffected by changes in commodity prices. The company simply transports the fuels from production facilities to refineries, storage facilities, liquefied natural gas (LNG) plants or utilities and charges a fee for providing the service.

Enbridge operates strategically important oil and natural gas pipeline networks, the value of which should gradually increase due to the challenges of permitting and the construction of new plants. With a market cap of about $109 billion, Enbridge still has the financial clout to make acquisitions to drive revenue growth. The Company also continues to be able to find smaller development projects across its asset base, including its current $13 billion capital program.

A $10,000 investment in Enbridge stock 25 years ago would be worth $134,000 today if an investor pocketed all of the dividends, and it would be worth more than $225,000 if the dividends were reinvested.

The quintessence of the top stocks to buy for passive income

An equal investment in TD and Enbridge would generate an average dividend yield of 5.3%. Investors today can easily build a diversified portfolio of top stocks to generate that return. With a TFSA of $81,500, that would translate to $4,319.50 in annual tax-free income. That’s almost $360 a month!