It is said that the more you age, the less you invest in equity. While stocks carry risk, you can control risk by using a low-volatility investing style. You can get an average monthly Canada Pension Plan (CPP) payout of $811.2 in 2023. To get this CPP at age 65, you contributed a certain percentage of your monthly income for 35-40 years while you worked. But with passive-income investing, you can earn the CPP amount in half the time.
Investing for a TFSA passive income
If you are investing to generate a secondary source of earnings, use the dividend investing model. The TSX Composite Index has some Dividend Aristocrats that fit the bill for your passive-income portfolio. And while you are at it, use a Tax-Free Savings Account (TFSA) if you plan to withdraw passive income every month. The CPP withdrawals are taxable, but TFSA withdrawals are not.
How to invest in TFSA for passive income
Now for the investing part. Depending on your age and other income sources, you can determine which dividend stocks to buy for your TFSA passive income.
If you depend on dividend stocks for utility bills or groceries, you might want to invest in safe stocks, like Enbridge (TSX:ENB). It has never missed a dividend payment in 67 years or reduced its dividend. In most years, it has grown its dividend per share, making it an ideal stock to earn passive income.
Past performance does not guarantee future returns. But in Enbridge’s case, other fundamentals confirm that the dividend payment will continue for the next few years:
Dividend payout ratio: It tells you the percentage of the distributable cash flow (DCF) a company spends on dividend payments. Enbridge has maintained this ratio between 60% and 70%.
DCF growth: Enbridge earns its DCF from the toll money it collects for allowing oil and gas to transmit through its pipelines. DCF increases as every new pipeline becomes operational. While the toll rate is regulated, Enbridge can add maintenance or upgrade costs to the toll money.
Enbridge expects to grow its 2023 DCF by 4%. Given that the company has been achieving its guidance for 17 years, it could probably achieve its guidance in the coming years.
How to achieve $800/month in TFSA passive income with Enbridge?
Enbridge is a range-bound stock ($40-$60 range). Any price above or below this range is not sustainable and is likely to correct. While building a TFSA investing plan to earn $800/month, I assumed three things:
- You invest $6,000 a year to buy Enbridge stock at an average cost of $55
- Enbridge keeps growing its dividend at a 3% compound annual growth rate (CAGR)
- You reinvest the dividend
Any change in these three factors could change the outcome.
| Year | Annual Investment+ Dividend Reinvestment | Accumulated ENB Shares | ENB Dividend per share (3% CAGR) | Total dividend |
| 2023 | $6,000.00 | 109.09 | $3.55 | |
| 2024 | $6,387.27 | 225.22 | $3.66 | $387.27 |
| 2025 | $6,823.53 | 349.29 | $3.77 | $823.53 |
| 2026 | $7,315.48 | 482.30 | $3.88 | $1,315.48 |
| 2027 | $7,870.91 | 625.40 | $4.00 | $1,870.91 |
| 2028 | $8,498.84 | 779.93 | $4.12 | $2,498.84 |
| 2029 | $9,209.73 | 947.38 | $4.24 | $3,209.73 |
| 2030 | $10,015.83 | 1129.48 | $4.37 | $4,015.83 |
| 2031 | $10,931.38 | 1328.24 | $4.50 | $4,931.38 |
| 2032 | $11,973.12 | 1545.93 | $4.63 | $5,973.12 |
| 2033 | $13,160.66 | 1785.21 | $4.77 | $7,160.66 |
| 2034 | $14,517.08 | 2049.16 | $4.91 | $8,517.08 |
| $10,069.64 |
A $6,000 investment in 2023 will buy you 109 ENB shares at $55/share. The company aims to pay a $3.55 annual dividend per share. So, by the start of 2024, you would earn $387 in dividend income. As it is in the TFSA, your investments can grow tax free, and you can reinvest the entire dividend amount.
In 2024, your investment amount increases to $6,000 (your contribution) + $387 dividend reinvestment at $55/share. A $6,387 investment can buy you 116 ENB shares. Now, add them to your 2023 shares. You now own 225 ENB shares, which pay you $823 in annual dividends.
Repeat this process for 12 years. At the beginning of 2035, your TFSA is earning $10,000 in passive income. If you decide to withdraw monthly, you get $839/month.
