In 2022, the Canadian government increased the Tax-Free Savings Account (TFSA) contribution limit by $6,000. That means individual Canadians can contribute a total of $81,500 into their TFSA. For a couple, that is $163,000 that can collectively be invested to generate tax-free passive income today.
Market dips are ideal times to add top dividend stocks to your TFSA
Buying top-quality dividend stocks on stock market dips has been a great way to maximize passive-income yields over the long term. In fact, if a Canadian couple combined their TFSA contributions, they could theoretically generate $733 of tax-free, monthly passive income.
Here at the Fool, we recommend investors have a diversified portfolio of at least eight to 10 solid TSX stocks. However, the examples below simply demonstrate how Canadian couples can use market downturns to buy great Canadian dividend stocks and earn outsized passive-income returns that can last for years.
BCE (TSX:BCE)(NYSE:BCE) is a great Canadian stalwart for passive dividend income. With a market cap of $55 billion, it is Canada’s largest telecommunications provider. Cellular and internet services are as crucial as water and electricity in our modern world. Consequently, BCE earns consistent and reliable earnings that convert into attractive dividends.
BCE stock currently earns investors a 5.99% dividend yield. It has done a tremendous job of growing its dividend annually by 5% or more since 2008. Given the completion of a large infrastructure build-out over the next few years, chances are high that excess cash earned will be put into further dividend growth.
If one-third ($54,000) of a couple’s combined TFSA contribution was put in BCE stock, it would generate $810 every quarter, or $270 averaged monthly.
Another great Canadian stock for TFSA passive income is Toronto-Dominion Bank (TSX:TD)(NYSE:TD). It has a market cap of $153 billion. It is one of Canada’s largest retail banks and a serious contender in the eastern United States.
The U.S. has been a major growth engine for years, and that should continue to expand, especially if it completes deals to buy First Horizon Bank and Cowen.
TD has a century-long history of paying a dividend. It has increased its dividend by an 11% annualized rate since 1995. Today, it earns a 4.22% dividend yield, which is substantially above its five-year average of 3.8%.
Put another third of a couple’s TFSA contribution into TD stock, and it would earn $569.70 quarterly, or $189.9 averaged monthly.
TC Energy (TSX:TRP)(NYSE:TRP) is another great stock for a TFSA to earn outsized dividend income. This company has a market cap of $58 billion. TC operates one of North America’s largest natural gas infrastructure networks.
For context, 25% of natural gas consumed on the continent is transported by TC Energy. Given the current global energy crisis, TC is in a strong position to deliver infrastructure solutions that alleviate these challenges.
TC Energy stock earns a 6.08% dividend yield today. Since 2000, it has grown its dividend by a compounded annual growth rate (CAGR) of 7%. The prospects for future 3-5% annual dividend growth look promising.
If a couple put one-third of their TFSA capacity into TC Energy stock, they would earn $820.80 quarterly, or $273.60 averaged monthly.
The takeaway on TFSA passive income
When combined, couples have significant power to earn reliable, tax-free passive income in their TFSA. Stock market dips can present a great opportunity to diversify your portfolio, lock in high dividend yields, and accelerate returns for the long term.