TFSA Investors: How to Earn Tax-Free Passive Income of $5,285 in 2021

Investors can earn a passive income of over $5,285 this year by investing in these high-yielding dividend stocks.

| More on:
growing plant shoots on stacked coins

Image source: Getty Images

Last year taught us the importance of having a secondary income, as many Canadians lost their jobs amid the pandemic-infused lockdown. Despite the government’s support, people with secondary income fared better during the crisis. Meanwhile, given the low-interest-rate environment, investing in high-yielding dividend stocks could be the cheapest and most convenient way to earn passive income.

The Canadian government had initiated the Tax-Free Savings Account (TFSA) program in 2009 to encourage Canadian citizens to save more. It allows Canadians to earn tax-free returns on a specified amount called contribution room. For 2021, the Canada Revenue Agency (CRA) has set the contribution room of $6,000, while the cumulative contribution limit stands at $75,500.

If a TFSA holder invests the entire amount of $75,500 in dividend stocks with 7% yields, they can earn a tax-free passive income of $5,285 in 2021. Meanwhile, here are two safe TSX companies with dividend yields of above 7%.

Pembina Pipeline

An energy transportation and midstream service company, Pembina Pipeline (TSX:PPL)(NYSE:PBA), has been delivering robust numbers over the last few years. Its adjusted EBITDA per share had increased at a CAGR of approximately 13% over the previous 10 years. Given its highly contracted business, the company earns around 95% of its adjusted EBITDA from fee-based contracts, delivering stable and predictable cash flows.

These strong cash flows have allowed Pembina Pipeline to maintain or raise its dividends since 1998. With monthly dividends of $0.21 per share, its dividend yield currently stands at 7.1%.

Meanwhile, Pembina Pipeline’s management has provided an optimistic outlook for 2021. The management expects its adjusted EBITDA to be in the range of $3.2 billion to $3.4 billion, representing a 9% growth from the mid-point of its 2020 guidance. The increased asset utilization due to higher oil demand could drive the company’s financials in 2021. Further, given its liquidity of $2.54 billion, the company’s financial position looks healthy.

Enbridge

The energy infrastructure company, Enbridge (TSX:ENB)(NYSE:ENB), has made a strong start to this year, with its stock price rising by 10.6%. The increased oil demand amid the uptick in economic activities has led its stock price to surge.

Meanwhile, Enbridge runs a highly regulated business, with 98% of its adjusted EBITDA generated from its long-term contractual agreements, thus stabilizing its financials and cash flows. Further, the company is continuing with its $16 billion secured growth capital program, which could contribute $2 billion of adjusted EBITDA growth from 2021 to 2023. Further, its management has reaffirmed its long-term guidance, which projects a 5-7% annualized growth in its distributable cash flow per share. So, the company’s growth prospects look healthy.

Enbridge has been paying dividends for the past 66 years. It has raised its dividends at a CAGR of 10% over the last 26 years. Last month, the company’s board increased its quarterly dividends by 3% to $0.835 per share, representing a dividend yield of 7.4%. Given its healthy growth prospects and stable cash flows, we can expect the company to continue raising its dividends in the coming years. So, Enbridge would be an excellent buy for income-seeking investors.

Bottom line

Given their strong track records, stable cash flows, and healthy liquidity positions, both companies’ dividends are safe. Along with dividends, investors could benefit from stock price appreciations. Amid improving oil demand, I expect both companies to deliver strong numbers this year, driving their stock prices higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends PEMBINA PIPELINE CORPORATION. Fool contributor Rajiv Nanjapla has no position in the companies mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »