The Tax-Free Savings Account (TFSA) was introduced in 2009 and has become a popular registered account among Canadians. It offers investors a ton of flexibility, as you can hold a variety of qualified investments across asset classes in the TFSA.
Moreover, the TFSA can be used to hold a basket of quality dividend stocks that can help Canadians create a passive-income stream. These dividends are exempt from Canada Revenue Agency taxes, making them ideal for income-seeking investors.
Let’s see how the below TSX stocks will help you earn $20,000 in tax-free dividend income annually over time.
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Enbridge stock
An energy behemoth trading on the TSX, Enbridge (TSX:ENB) currently offers you a dividend yield of 6.8%. The energy infrastructure company has a diversified base of cash-generating assets, allowing it to increase dividends each year for 28 consecutive years.
A majority of its cash flows are backed by long-term contracts indexed to inflation, making it relatively immune to fluctuations in commodity prices.
While several companies part of the energy sector suspended or cut dividends during COVID-19, Enbridge increased these payouts, showcasing the resiliency of its business model.
Northwest Healthcare stock
A company that offers you exposure to the real estate and healthcare sectors, Northwest Healthcare (TSX:NWH.UN) is a real estate investment trust (REIT) that offers you a tasty dividend yield of 9.8%.
Northwest Healthcare is part of a recession-resistant healthcare sector and ended the last year with occupancy rates of almost 98%. The REIT continues to acquire properties, allowing it to pay shareholders a monthly dividend.
Fiera Capital stock
An asset management company that currently yields 11.2%, Fiera Capital (TSX:FSZ) is also trading at a cheap multiple. Valued at 6.6 times forward earnings, Fiera Capital is well poised to increase its earnings, as market sentiment improves in the second half of 2023.
Fiera Capital generates sales from management fees and performance fees, which is directly related to the assets under management. The TSX stock is also priced at a discount of 21% to consensus price target estimates.
TransAlta Renewables stock
One of the largest clean-energy companies in Canada, TransAlta Renewables (TSX:RNW), also pays investors a monthly dividend. The stock currently yields 7.6%, which is quite generous amid a sluggish macro environment.
The worldwide shift towards renewables will act as a key driver for RNW stock, making it an exciting bet right now.
Algonquin Power & Utilities stock
One of the most popular TSX stocks, Algonquin Power & Utilities (TSX:AQN) pays investors annual dividends of $0.59 per share, indicating a yield of 5.2%. A utility and clean energy company, AQN cut its dividends by 40% in 2022, making investors extremely nervous.
However, it also targets to sell $1 billion of assets, the proceeds of which will be used to reduce debt and fund other accretive investments.
The Foolish takeaway
The maximum TFSA contribution room in 2023 stands at $88,000, which, if distributed equally in the five TSX stocks, can help you earn around $7,150 in annual dividends, translating to a yield of 8.1%.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Enbridge | $52.83 | 333 | $0.8875 | $296 | Quarterly |
| Northwest Healthcare | $8.15 | 2,160 | $0.067 | $145 | Monthly |
| Fiera Capital | $7.65 | 2,300 | $0.215 | $495 | Quarterly |
| TransAlta Renewables | $12.41 | 1,418 | $0.078 | $110.6 | Monthly |
| Algonquin Power & Utilities | $11.34 | 1,534 | $0.147 | $225 | Quarterly |
If these companies increase dividends by 7% each year, your annual payouts will touch $20,000 within 16 years. Alternatively, you can reduce this time by purchasing additional dividend stocks with attractive yields with your TFSA contribution each year.
