TFSA Investors: How to Make $400 a Month of Passive income in 2022

If you want to maximize your TFSA and create a growing stream of passive income, here’s what to consider when crafting your portfolio for 2022.

Various Canadian dollars in gray pants pocket

Image source: Getty Images

As many Canadian investors know by now, the TFSA is one of the best tools at our disposal. Having the ability to save a good chunk of change each year and invest it in stocks, where all the gains you make, whether it’s passive income or capital gains, are all tax-free is truly a significant privilege.

And as of 2022, for investors who have been eligible since year one, the total contribution room available is now more than $80,000 — $81,500, to be exact.

This is an incredible sum of money and an excellent starting point for investors to find high-quality stocks they can plan to buy and hold long term.

For dividend investors, it also means that you can begin to build an attractive stream of passive income. And if you find high-quality stocks, not only can you add to your passive-income stream each year as your contribution room increases, but these stocks will likely also increase their payouts to you often as well.

So, if you’re looking to build a passive-income stream in your TFSA, here’s what to consider.

Safety is better than yield when it comes to passive income

As dividend investors, we all want to own the best investments that return us the most passive income, which, naturally, draws us to higher-yield dividend stocks. However, in general, the higher the yield, the more risk that the stock has or that the dividend might be trimmed.

So, if you’re going to invest in a high-yield dividend stock, it’s crucial to ensure that you understand the risks and are confident that the company can continue to maintain its payout.

However, even if that’s the case, it still might not be as attractive of an investment as a dividend-growth stock, which may not yield as much today but has the potential to continue increasing the passive income it returns to you each year.

How to earn $400 a month with your TFSA

If you’ve been eligible for the TFSA since year one and you maximize your contribution, your portfolio only needs to yield 5.9% in order to earn $400 a month of passive income.

That might sound a little high, but there are plenty of safe and dependable dividend stocks that offer a dividend yield of 5.9% or more.

Pizza Pizza Royalties, one of the safest restaurant royalty stocks, currently offers a dividend yield that’s upwards of 6.1%. Plus, the company showed how resilient it was during the pandemic, weathering the storm much better than its peers.

Another company that generally performed well through the pandemic was Alaris Equity Partners, a high-quality stock that’s made for passive-income seekers. Alaris finds high-quality private businesses across North America to take a preferred equity position. It then receives monthly distributions, which it uses to payout to shareholders. Currently, Alaris yields roughly 7.1%.

You’ll also want to consider high-quality dividend-growth stocks too, such as Enbridge. Enbridge, the massive $100 billion energy giant, currently offers a highly resilient dividend that yields 6.85%. Plus, the stock is a Dividend Aristocrat that increases its payout to investors each year.

Lastly, another solid option is BCE. BCE is a massive blue-chip like Enbridge and also happens to be a Canadian Dividend Aristocrat. So, although BCE only yields 5.4% today, that’s still a significant amount for such a safe dividend. Plus, as the company increases its dividend, the yield on cost of your investment will naturally improve.

Owning dividend stocks is one of the best and safest strategies for long-term investors. So, if you’re a Canadian investor that wants to start earning a tonne of growing passive income, I’d utilize your TFSA and find the top Canadian stocks that you can commit to for the long haul.

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.

Fool contributor Daniel Da Costa owns shares of BCE INC. and ENBRIDGE INC. The Motley Fool owns shares of and recommends PIZZA PIZZA ROYALTY CORP. The Motley Fool recommends Alaris Equity Partners Income Trust and Enbridge.

More on Dividend Stocks

money cash dividends
Dividend Stocks

2 TSX Dividend Stocks Paying Big Income in a Bearish Market

Despite a pullback in the market, there are still plenty of dividend stocks paying big income to buy. Here’s a…

Read more »

consider the options
Dividend Stocks

Better Buy for Dividends – Enbridge or BCE Stock?

Given the favourable market conditions, higher dividend yield, and cheaper valuation, I am more bullish on Enbridge.

Read more »

Dividend Stocks

3 of the Best Canadian REITs to Buy While They’re Still Undervalued

These three Canadian REITs have attractive growth potential and are trading undervalued, making them some of the best to buy…

Read more »

oil and gas pipeline
Dividend Stocks

Why Enbridge Stock Is a Top Buy If There’s a Recession

Enbridge stock provides essential services, earns tonnes of cash flow and offers an attractive dividend – an ideal investment in…

Read more »

Illustration of bull and bear
Dividend Stocks

TFSA Investors: 2 TSX Stocks Set to Thrive in the Next Bull Market

Canadian Tire and another dividend growth play that's getting way too cheap to ignore amid the market's turbulence.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

How I’d Invest $20,000 to Earn Reliable Passive Income Today

If you want to turn up your passive income and total-return strategy, check out these top Canadian stocks for a…

Read more »

Electric car being charged
Dividend Stocks

2 Growth Stocks to Buy Before a Big Rally

Despite market volatility persistently plaguing the market, these two TSX stocks might be worth considering right now to prepare for…

Read more »

financial freedom sign
Dividend Stocks

2 Cheap TSX Stocks That Could Make You Rich

Keep these two cheap TSX stocks on your radar if you seek immense wealth growth potential for your self-directed portfolio.

Read more »