Income investors know the Tax-Free Savings Account (TFSA) is a great tool to help them get reliable, above-average returns on their hard-earned savings.
Any Canadian resident who was at least 18 years old in 2009 now has as much as $63,500 in TFSA contribution room. The limit will jump by $6,000 in 2019 and continue to grow at that pace with upward adjustments of $500 linked to inflation.
Beginning in January, a couple would have $139,000 in TFSA room to earn tax-free income.
GIC rates have plunged in the past year due to falling interest rates and declining bond yields. As a result, it is tough to get a guaranteed-income investment today that offers a rate above the 2% inflation level.
This arguably makes dividend stocks the best option, and investors have a variety of high-yield picks in the market today that provide reliable and growing payouts.
Let’s take a look at three stocks that might be attractive today to generate passive income in your TFSA portfolio.
BCE
BCE (TSX: BCE)(NYSE: BCE) is Canada’s largest communications company with world-class wireless and wireline infrastructure delivering mobile, internet, and TV services to customers across the country. The company has a wide moat due to its strong financial position and access to capital.
BCE is akin to the tortoise in the “Tortoise and the Hare” fable. It moves along at a steady pace, and while it might not be the most exciting stock, it is certainly one to watch if you are focused on income.
BCE raised its dividend by 5% this year, and similar annual increases should be on the way, supported by free cash flow growth of 7-12%.
The existing distribution provides a yield of 5.1%.
CIBC
Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) just reported solid results for fiscal Q3 2019.
The bank’s big investments in the United States in the past couple of years are paying off as the U.S. commercial and wealth management division generated a 6% gain in net income.
CIBC raised its dividend again when it announced the results, suggesting the management team is comfortable with revenue and profits expectations over the medium term.
Volatility in the financial markets could move the stock price around in the coming months, but the dividend should be very safe, and investors might want to add to their positions on further weakness. At the time of writing, the stock appears cheap at close to $100 per share and offers a yield of 5.75%.
TC Energy
TC Energy (TSX: TRP)(NYSE: TRP) is a leader in the North American energy infrastructure sector with natural gas, gas liquids, and oil pipelines. It also has natural gas storage and power-generation facilities.
The company’s robust development portfolio should support steady revenue and cash flow increases for several years, and TC Energy is large enough to find add-on projects inside the asset base or even make strategic acquisitions to drive long-term growth.
The dividend is expected to increase by 8-10% through 2021. The current payout provides a yield of 4.6%.
The bottom line
BCE, CIBC, and TC Energy all pay above-average dividends that should continue to grow.
An equal investment across the three stocks would provide a Canadian couple with annual tax-free income of $6,540 on their combined $127,000 TFSA portfolios.
That’s $545 per month in additional cash to supplement CPP, OAS, and company pension earnings.
