The Motley Fool

How to Turn Your TFSA Into a $1,000 Monthly Tax-Free Income Stream

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Some Canadians use a portion of their Tax-Free Savings Account (TFSA) as an emergency fund. You can be much better off by saving your TFSA contribution room for higher-return investments. Instead, put the emergency fund in a high-interest non-registered account.

Take advantage of your TFSA for a juicy tax-free income stream. If your account is large enough, your TFSA can pay $1,000 per month immediately.

Here are a few high-income Canadian Dividend Aristocrats you can check out for your TFSA tax-free income stream.

Enbridge stock yields 7.7%

Enbridge (TSX:ENB)(NYSE:ENB) consists of a massive network of liquids and gas pipelines are essential businesses that transport or distribute oil and gas across North America.

The company has a stable balance sheet with an investment-grade S&P credit rating of BBB+. ENB stock is a top TSX dividend stock with a track record of dividend increases for 25 consecutive years.

Its quality cash flow stream is primarily supported by investment-grade clients across +40 sources. Coupled with a payout ratio of 60-70%, its outsized 7.7% dividend yield is secure.

Due to stagnant growth in the last couple of years, the blue-chip dividend stock is trading at an attractive valuation. Upside of about 17% over the next 12 months is possible, although a longer investment period is likely to generate greater returns, especially from receiving a periodic juicy dividend.

BCE stock yields 6.1%

BCE (TSX:BCE)(NYSE:BCE) stock is another favourite idea for income. It’s awarded an investment-grade S&P credit rating of BBB+. Over the next few years, it can benefit from the growth from the rollout of 5G.

As a well-established Big Three telecom in Canada, BCE stock generates ample free cash flow to pay an appetizing dividend. In the trailing 12 months, it paid out about 75% of its free cash flow as dividends.

The stable telecom currently offers a juicy yield of 6.1%. At $54.51 per share at writing, the fairly valued stock is likely to provide upside of 5-10% over the next 12 months, which could lead to total returns of 11-16% over the near term.

Bank of Nova Scotia stock yields 5.2%

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) stock is on the path of recovery. As the COVID-19 pandemic becomes history, the international bank will benefit from a global economic recovery, especially from the higher growth in emerging markets.

Meanwhile, the stable bank stock provides a safe 5.2% yield. Its dividend is protected by a normalized payout ratio of about 50%. While its earnings rebound with above-average growth, BNS stock’s payout ratio could be more extended than usual.

Longer term, BNS can probably achieve earnings growth of 5-7% a year. This is also a dividend-growth rate investors can expect down the road.

Bank of Nova Scotia stock is awarded a quality S&P credit rating of A+.

The Foolish takeaway

If you have saved and invested regularly in quality dividend stocks and grown your TFSA into a six-figure portfolio, you could very well earn a $1,000-per-month tax-free income stream.

If not, buying and holding dividend-growth stocks like Enbridge, BCE, and BNS will get you much closer to that goal, as they tend to increase their dividends over time.

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Fool contributor Kay Ng owns shares of Enbridge and The Bank of Nova Scotia. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends BANK OF NOVA SCOTIA.

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