TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

The TFSA (Tax-Free Savings Account) is the perfect place to invest and earn passive income. Unlike non-registered investment accounts, income and capital gains earned in the TFSA are completely tax free.

A key part of building wealth is maximizing the amount of income you keep every year. By investing in your TFSA, you can save as much as 10-30% more (depending on your income bracket) in investment income per year. Compound those incremental amounts invested over a lifetime, and they can be worth thousands.

If you are looking for a place to start, here’s a beginner portfolio that could turn $10,000 of capital into over $500 of tax-free passive income every year.  

ENB stock: A large company and a substantial stream of passive income

You don’t need to look far to find quality companies to invest in on the TSX. In fact, some of Canada’s largest companies are great investments for passive income. With a market cap of $110 billion, Enbridge (TSX:ENB) is one Canada’s largest companies.

This energy infrastructure company has a diverse portfolio of businesses that include gas and oil pipelines, storage facilities, utilities, export terminals, and wind farms.

With $2,500, you could buy 61 shares of Enbridge. It earns a huge 6.4% dividend yield today. That would earn $39.80 every quarter, or $159.21 annually. Enbridge expects to grow its dividend annually by 3-5%, so your passive income should grow as well.

BCE stock: A big, stable dividend

BCE (TSX:BCE) is another well-known Canadian stock to buy in your TFSA for passive income. In this modern world, everyone needs internet and cellular devices. As a result, BCE tends to deliver very predictable mid-single-digit earnings growth every year.

While it is not growing much, it does pay an attractive 5.87% dividend yield. The company has a nearly decade-long history of growing its dividend by +5% annually.

A $2,500 investment would buy 53 shares of BCE. That would earn $36.43 of dividends quarterly, or $145.75 annually. Capital growth will be modest with this stock, but if all you want is income, it is a pretty low-risk bet.

BEP stock: A growth and passive-income story

Brookfield Renewable Partners (TSX:BEP.UN) is the passive-income stock to buy if you want growth and an attractive dividend. Given growing demand for electricity globally, renewable power has a huge tailwind ahead.

Brookfield is active in every renewable segment (hydro, wind, solar, battery, and distributed generation). Its recent announcement to acquire a stake in Westinghouse will make it nuclear leader as well. This stock pays a 4.44% dividend yield. It has grown its dividend annually by around 6% for almost a decade.

With $2,500 you could buy 63 units of BEP stock. That would earn $27.41 of tax-free passive income per quarter, or $109.62 every year.

CNQ: A top dividend-growth stock

Canadian Natural Resources (TSX:CNQ) is another great TFSA stock for passive income. With a market cap of $91.6 billion, it is Canada’s largest energy producer. Canadian Natural has decades of energy reserves. It also has an incredibly low cost of production and a great balance sheet. Combine those elements, and this stock could generate very strong earnings and cash flows over the coming years.

It has grown its dividend by a 22% compounded annual growth rate for more than 22 years. Last year, it raised its dividend twice and paid a $1.50 per share special dividend. Today, this stock yields 4.10%.

You can buy 30 shares of CNQ stock with $2,500. That would earn $25.50 of tax-free, quarterly passive income. That would equate to $102 of annual passive income.