TFSA: Invest $10,000 and Easily Make $500/Year Without Losing Any Sleep

If you want to earn income without paying tax, then you need to get familiar with the TFSA.

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If you want to earn income without paying tax, then you need to get familiar with the TFSA (Tax-Free Savings Account).

The TFSA is the only CRA (Canada Revenue Agency) registered account that allows Canadians to deposit cash, invest, earn income, and pay zero tax on your gains/income. There is no tax on your income and no tax when you withdraw funds (unlike the Registered Retirement Savings Plan)!

The TFSA is the perfect place to invest for long-term income

Today, Canadians who were 18 years or older in 2009 can contribute a total of $88,000 for tax-free investing. Unfortunately, many Canadians make the mistake of not using their TFSA at all or only using their TFSA as a high-interest savings account.

While a high interest savings account is very safe, it will likely lose value (even with say a 3% interest rate) over the long term when you factor inflation. That is why Canadians should consider investing their TFSA funds in some form or fashion.

Here at the Motley Fool, we are stock pickers. Picking a diverse portfolio of dividend stocks can be a great way to earn steady tax-free income in any TFSA. In fact, with as little as $10,000, you could earn a combined $500 a year of relatively easy passive income.

Two top Canadian dividend stocks known for steady dividend growth are TELUS (TSX:T) and Canadian Natural Resources (TSX:CNQ).

A telecom stock with a consistently growing dividend

TELUS has grown its annual dividend by a 12% compound annual growth rate (CAGR) for almost 20 years. Its current dividend is nearly 10 times larger than it was in 2004. Over the past five years, it has led its sector in dividend growth.

TELUS has executed very well on its strategy. Not only has become a telecom leader (particularly in Western Canada), but it also is a leader of diversified digital services around the world. This is a major differentiator between it and its peers. This TFSA stock has numerous avenues to grow, whereas many competitors are limited in how they can expand.

The company is nearing the end of a large infrastructure spending cycle. Management expects to earn elevated levels of spare cash, which it hopes to return to shareholders in dividend increases. Speaking of management, TELUS’s chief executive officer just added a multi million-dollar stake in the business.

TELUS stock trades with a 5.3% dividend yield. Invest $5,000 of your TFSA into TELUS stock, and you would earn $64.75 quarterly, or $259 annually.

An exceptional energy stock perfect for a TFSA

Speaking of dividend longevity for your TFSA, Canadian Natural Resources has increased its dividend by a +20% CAGR over the past 23 years. Even though it operates in a generally cyclical industry, it has the long-life assets and well-oiled operations. It should be able to produce energy for decades to come. Its dividend-growth profile just speaks to the quality of this top Canadian company.

Canadian Natural has exceptional assets that generate spare cash at even low oil prices (about US$40 per barrel). It has an executive team that is heavily invested in the business. Their incentives to earn high returns on capital are aligned with shareholders.

Today, Canadian Natural stock yields 4.8% today. Put $5,000 of your TFSA cash to work in CNQ, and you would earn $59.40 of quarterly tax-free income, or $237.60 annually.

TELUS Corp.26.83185$0.35$64.75Quarterly
Canadian Natural Resources74.7966$0.90$59.40Quarterly
Prices as of March 31, 2023

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 Robin Brown has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and TELUS. The Motley Fool has a disclosure policy.

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