TFSA Passive Income: How to Earn $397 per Month Tax-Free for 40 Years

Canadian TFSA investors seeking stable passive income are looking for quality TSX dividend stocks to buy for their retirement portfolios. The market correction in 2022 presents an opportunity to buy some great Canadian dividend stocks at bargain prices.

TFSA101

The government created the TFSA in 2009 to provide Canadian residents with an additional savings investment tool. TFSA contribution limits are increasing each year, with the maximum cumulative place now at $81,500 per person. That’s enough to build a significant portfolio of dividend stocks that can provide reliable and growing passive income.

All interest, dividends and capital gains generated within the TFSA remain tax free. This means dividend investors can pocket the full value of distributions straight into their pockets and the amount withdrawn will open up new TFSA contribution space in the following calendar year.

TFSAs focused on passive income can now choose from a range of high-yield dividend stocks that appear cheap.

Enbridge

Enbridge (TSX:ENB) (NYSE:ENB) is trading for less than $56 a share at the time of writing, compared to $59 earlier this year. The pullback offers investors a chance to buy ENB shares on a dip and lock in a 6.2% dividend yield.

Enbridge has increased its dividend every time for the past 27 years, and investors should see the steady dividend growth continue as new assets boost sales and distributable cash flow. Enbridge is working on a $13 billion capital program and has the financial muscle to make strategic acquisitions.

The recovery in the oil and natural gas industry is expected to continue for several more years. In particular, demand for Canadian and American energy is expected to be strong. Europe is trying to secure supplies to end its dependence on Russia, and other countries are looking for reliable sources of liquefied natural gas (LNG) as they transition from coal to electricity.

Enbridge last year bought an oil export terminal in Texas for $3 billion and is building new natural gas pipelines to supply LNG plants on America’s Gulf Coast. In Canada, Enbridge has a 30% interest in the Woodfibre LNG project in British Columbia and is expanding its natural gas pipeline system in the province.

Manulife

Manulife (TSX:MFC) (NYSE:MFC) operates insurance, asset management and wealth management businesses in Canada, the United States and Asia. The company generated record earnings of $7.1 billion in 2021 and increased its 2022 dividend by 18%.

Higher morbidity and mortality claims in the early part of the year due to the Omicron surge, combined with the correction in stock markets, put pressure on sales and earnings in the second quarter, but these are temporary setbacks and the resulting drop in share price appears overdone. Manulife is trading near $24 at the time of writing, compared to its 2022 high of $28.

Rising interest rates are likely to boost returns on the cash insurance companies have to set aside to cover potential claims. The market rally over the past few weeks could result in stronger than expected Q3 results. Looking ahead, the Asian business offers strong long-term growth potential as the expansion of the middle class should boost demand for insurance and wealth management products.

Investors who buy MFC stock today can earn a yield of 5.5% and simply wait for dividend increases to arrive in the years to come.

The quintessence of the top stocks to buy for passive income

Enbridge and Manulife are good examples of industry leaders paying attractive and growing dividends. An equal investment in the two stocks right now would yield an average return of 5.85%. Investors can easily assemble a diversified portfolio of quality TSX dividend stocks to achieve this level of returns.

For a TFSA investment of $81,500, the 5.85% return would generate $4,767.75 per year in tax-free passive income. That’s over $397 a month!

If you’ve got some cash to stake in a TFSA focused on passive income, these stocks deserve to be on your radar.