The Tax-Free Savings Account (TFSA) can be used as a vehicle to create an alternate stream of passive income. You can hold a portfolio of blue-chip dividend stocks in your TFSA and enjoy a recurring stream of payouts every quarter. Over the long term, investors should also benefit from capital gains. Moreover, any returns generated in a TFSA on qualified investments are exempt from Canada Revenue Agency taxes.
What are the contribution limits for a TFSA?
The TFSA was introduced back in 2009 to encourage tax-free savings. Each year, the contribution limit increases for TFSA investors, and this limit is generally indexed to inflation. For instance, in 2023, the TFSA contribution limit has increased to $6,500, bringing the maximum cumulative contribution limit to $88,000.
So, let’s see how you can invest $50,000 in your TFSA and earn $300 in monthly passive income by investing in quality dividend stocks.
Keyera stock
An energy infrastructure company, Keyera (TSX: KEY) delivered over $1 billion in annual adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in 2022 due to elevated crude oil prices.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Keyera | $30.29 | 550 | $0.16 | $88 | Monthly |
| Royal Bank of Canada | $130.94 | 127 | $1.32 | $168 | Quarterly |
| Fiera Capital | $7.73 | 2,156 | $0.215 | $464 | Quarterly |
Keyera also sanctioned an increase in capacity at its Pipestone gas plant and acquired additional capacity at the company’s Fort Saskatchewan complex in the last year.
A strong pricing environment allowed Keyera to end 2022 with a net debt-to-adjusted EBITDA multiple of 2.5x, which is at the lower end of its guidance. It also spent close to $750 million in capital expenditures in 2022, which should expand its base of cash-generating assets and support future earnings growth.
Keyera pays shareholders annual dividends of $1.92 per share, translating to a forward yield of 6.3%.
Royal Bank stock
One of the largest banks in the world, Royal Bank of Canada (TSX: RY) offers you a dividend yield of 4%. The bank crisis in the United States has dragged RY stock lower by 12%, offering you the opportunity to buy the dip.
While the banking sector is quite cyclical, Royal Bank is equipped with a strong balance sheet, allowing it to maintain dividend payouts even during the financial crash of 2009.
In the last 20 years, RY stock has returned 353% to investors. But after adjusting for dividends, total returns are closer to 870%.
A higher interest rate environment will negatively impact demand for loans across verticals such as commercial and mortgage. But it will also allow RY Bank and its peers to increase earnings by 6% in fiscal 2023, according to consensus estimates.
So, RY stock is priced at 11 times forward earnings, which is very cheap. Analysts expect shares of the banking giant to surge by 10% in the next 12 months.
Fiera Capital stock
The final dividend stock on my list is Fiera Capital (TSX: FSZ), which currently offers shareholders a yield of 11.1%. An alternate asset management company, the performance of Fiera Capital is closely tied to the stock market.
In a bear market, its assets under management generally take a hit resulting in lower management and performance fees. Currently priced at 6.5 times forward earnings, FSZ stock is trading at a discount of 20% to consensus price target estimates.
The Foolish takeaway
An investment of $50,000 equally distributed in these three TSX stocks will help you earn $3,550 in annual dividends, translating to a monthly payout of almost $300.
