The annual Tax-Free Savings Account (TFSA) contribution limit remained at $6,000 from 2019 to 2021. However, persistent high inflation prompted the Canada Revenue Agency (CRA) to adjust and make it a bit better. For 2023, the limit for existing TFSA users is $500 higher.
However, for anyone over 18 in 2009 who hasn’t opened a TFSA and never contributed, the available contribution room is $88,000. The CRA indexes the limit to inflation, although with or without the increase, it helps Canadians to contribute every year if finances allow.
The primary reason to love the TFSA is that investment gains are never taxed if you stick to domestic assets. So, please don’t use it as an ordinary savings account or to store cash because it’s pointless. Most users, including retirees, hold income-generating assets like stocks, mutual funds, guaranteed investment certificates (GICs), and exchange-traded funds (ETFs).
If you prefer dividend stocks for higher tax-free income, buy shares of Pembina Pipeline (TSX:PPL) and Exchange Income Corporation (TSX:EIF). Since both pay monthly dividends, TFSA balances will grow faster through the power of compounding. Instead of the typical payout frequency (quarterly), you can reinvest the dividends 12 times a year, not four.
The table below shows how many shares of PPL and EIF you can buy with $6,500 and the total payout you can expect to receive.
| Company | Price | No. of Shares | Dividend per Share | Total Payout | Frequency |
| PPL | $48.26 | 134 | $2.68 | $359.12 | Monthly |
| EIF | $53.72 | 121 | $2.52 | $304.86 | Monthly |
Enduring and essential business
Pembina’s business is enduring because pipelines are essential to energy supply, and demand won’t disappear. The $26.6 billion company owns an integrated network of hydrocarbon liquids and natural gas pipelines. Also, its gas gathering and processing facilities, oil and natural gas liquids infrastructure, and logistics services are vital to North America’s oil and gas midstream industry.
Management is committed to providing highly competitive dividends. Current investors enjoy a 5% year-to-date gain on top of the lucrative 5.56% dividend. As shown in the table above, the new $6,500 TFSA limit can generate $359.12 in dividends or $29.92 in passive income monthly. Pembina Pipeline is also a dividend aristocrat owing to 10 consecutive years of dividend increases.
Diversified business model
The diversified family of companies under one umbrella has helped Exchange Income overcome the challenging environment. This $2.3 billion acquisition-oriented company caters to customers in the aviation, aerospace, and manufacturing sectors.
Its CEO, Mike Pyle, said because of management’s commitment to investment and diversification within the family, the company delivered its best quarterly financial performance ever in Q3 2022. In the nine months that ended September 30, 2022, the net earnings and free cash flow (FCF) jumped 123% and 43% year over year to $49 million and $69 million, respectively.
As of this writing, the monthly income stock pays a decent 4.69% dividend. Exchange Income is one of the top-performing constituents in the industrial sector. Its total return in 19.9 years is 3,966.08%, representing a compound annual growth rate (CAGR) of 20.4%.
Better option
TFSA investors can use their new $6,500 to purchase Pembina Pipeline and Exchange Income to produce passive income per month instead of quarterly.
