TFSA Investors: 2 Dividend Stocks I’m Practically Addicted To Buying

How to earn $225 in monthly tax-free passive income in seven years. Make these dividend stocks a regular in your monthly stock buying.

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The high-interest rate economy attracted many investors to fixed-income securities and dividend stocks. These stocks carry comparatively lower risk than growth stocks as you can predict their cash flows. Dividend aristocrats have achieved this status by giving regular dividends without any cuts for over 50 years. Dividend lovers like me are addicted to buying these stocks at regular intervals. 

Buying dividend stocks regularly

When you know a share can give you more than $3 in annual dividends for decades, a little math can help you determine the outcome you seek. Investing $500/month in stocks that give an average annual yield of over 5.5% can help you earn $225 per month from 2030 onwards. Here’s how. 

YearContributionDividendsTotal Amount
2023$6,000.0 $6,000.0
2024$6,000.0$330.0$12,330.0
2025$6,000.0$678.2$19,008.2
2026$6,000.0$1,045.4$26,053.6
2027$6,000.0$1,432.9$33,486.5
2028$6,000.0$1,841.8$41,328.3
2029$6,000.0$2,273.1$49,601.4
2030$0.0$2,728.1 
How to convert a $500/month investment into a $225/month passive income

A $500 monthly investment in your Tax-Free Savings Account (TFSA) will convert into $6,000 in a year. If your $6,000 earns you a 5.5% yield, you can get a $330 dividend income at the end of 2024. 

You can compound your returns by reinvesting them into stocks with a 5.5% yield. Reinvesting dividend income plus an additional $6,000 investment could grow your TFSA portfolio to $12,330 at the end of 2024. 

Repeat this for seven years and compound your TFSA portfolio to $49,600, which pays an annual dividend of over $2,700 by the end of 2030. As you invest through the TFSA, all your reinvestment is tax-free. The $2,700 annual dividend equates to $225 in monthly passive income. 

Two dividend stocks you could get addicted to

Two stocks have been delivering a 5.5% average dividend yield and even growing them for more than a decade. This growth could get you addicted to buying these stocks in every market cycle. But maintain the addiction till these stocks deliver a 5.5% dividend yield. 

BCE stock 

Three things make me bullish on BCE (TSX:BCE), the 5G secular trend, 2.8% weighted average cost of the public debt, and 5% average dividend growth for 13 years. The telco started accelerated capital spending of $14 billion between 2020 and 2022, which helped it raise capital when interest rates were at record lows. It helped the company control its interest expense when other companies saw their profit margins shrink due to rising borrowing costs. 

While BCE controlled its cost, it accelerated its revenue growth by tapping the 5G trend. The fifth-generation technology brings broadband-like speed to edge devices and makes autonomous cars and smart cities a reality. The internet of things (IoT) device proliferation could bring more subscription revenue and help it grow cash flows. These cash flows could help BCE grow dividends for the coming decade as it rides the 5G wave. 

Enbridge stock

Enbridge has a 69-year history of paying regular dividends and growing them for the last 28 years. The company’s dividend growth slowed to 3% in the last three years (from 9.8% in 2020) even after reporting strong earnings in 2022. The slowdown is because earnings growth was driven by higher oil and gas prices caused by the global energy crisis. Once the prices ease, so will the profits. 

Hence, Enbridge is paying 65% of its distributable cash flow in dividends and reinvesting the remaining amount in natural gas pipeline projects. Using its money to fund projects can help reduce the interest expense on project financing. The company is tapping the opportunity of natural gas exports to Europe after the west imposed sanctions on Russian oil and gas. Once these projects come online, they could bring in regular cash flows, and that is the time Enbridge might accelerate its dividend growth. 

The bottom line 

The two dividend aristocrats have the potential to give you a 5.5% average dividend yield for the next six to seven years. The dividend growth will be a bonus and could help you earn higher passive income in the coming years. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

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