Canadians need to create multiple passive-income streams to lead a comfortable life in retirement. One popular and low-cost strategy to create passive income is by building a portfolio of blue-chip dividend stocks. Further, these TSX stocks can be held in a TFSA (Tax-Free Savings Account), which means any returns in the form of dividends and capital gains will be exempt from taxes.
The best dividend stocks are companies that generate cash flows across market cycles, allowing them to raise payouts each year. So, it’s essential to identify companies with attractive dividend yields, sustainable payout ratios, and predictable cash flows.
The cumulative TFSA contribution limit is $88,000
Introduced back in 2009, the TFSA limit increases each year and is indexed to inflation. The TFSA contribution room for 2023 rose by $6,500, bringing the cumulative limit to $88,000. For investors to earn $500 in monthly income, or $1,500 in quarterly income, with $88,000, they need to buy stocks with an average yield of 6.8%.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| TC Energy | $54.94 | 534 | $0.93 | $497 | Quarterly |
| Diversified Royalty | $3.08 | 9,524 | $0.02 | $190.5 | Monthly |
| Great-West Lifeco | $36.60 | 801 | $0.52 | $416.5 | Quarterly |
Here are three such TSX dividend stocks that can help you earn $500 tax-free each month in retirement.
TC Energy stock
An integrated company part of the energy sector, TC Energy (TSX: TRP) transports 25% of the natural gas in North America. Its natural gas and liquids pipelines are strategically positioned and connect the lowest-cost basins to large-demand markets.
With more than $100 billion in assets, TC Energy reported comparable EBITDA (earnings before interest, tax, depreciation, and amortization) of $9.9 billion in 2022.
Over 95% of TC Energy’s EBITDA is regulated and backed by long-term contracts, allowing it to pay investors annual dividends of $3.72 per share, translating to a dividend yield of 6.8%.
TC Energy has raised its dividend by 6.4% annually for the last 20 years, making it a top bet for income-seeking investors.
With a capital-expenditure plan of $34 billion, TC Energy continues to expand its asset base, which should support dividend hikes in the near term.
Great-West Lifeco stock
A blue-chip TSX stock that currently yields 5.7%, Great-West Lifeco (TSX: GWO) operates in the insurance and asset management verticals. Great-West has increased dividends by 6.7% since April 2003.
Priced at 10 times forward earnings and 0.5 times forward sales, Great-West Lifeco is forecast to increase sales by 9.6% to $75 billion in 2023. Comparatively, its adjusted earnings are estimated to rise 7.2% in the next 12 months.
Despite a volatile macro environment, Great-West increased earnings by 34% to $1.02 billion in the fourth quarter of 2022. It ended the year with $701 billion in consolidated assets, while its assets under management totaled $2.5 trillion.
Diversified Royalty stock
The final TSX dividend stock on my list is Diversified Royalty (TSX: DIV), which offers a forward yield of almost 8%. Valued at a market cap of $440 million, Diversified Royalty provides Canadians exposure to a diversified portfolio of cash-generating businesses.
Diversified Royalty acquires top-line royalties from franchisors and multi-location businesses. With a strong presence in Canada, the company is looking to gain traction in the United States and completed its first royalty transaction with the acquisition of Stratus.
Operating in the commercial cleaning and building maintenance vertical, Stratus will help Diversified Royalty earn $8 million in annual royalties, accounting for 14% of the top line. Priced at 15.4 times forward earnings, DIV is trading at a discount of 27% to consensus price target estimates.
