TFSA Investors: Invest $6,500 for $403 in Income Every Year

It might not look like it now, but this passive income stock could be a huge win for TFSA investors seeking long-term gains and income.

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Tax-Free Savings Accounts (TFSA) are a superior place to put your investments for long-term holds. But here’s the problem, what do you get while TFSA investors wait for their returns? Of course, the answer is, passive income through dividends. And there are a few dividend-paying stocks that are quite tempting.

Yet today, we’re going to look at a passive income stock that will provide passive income now, and returns later. I know, it can be tempting to see shares rise and take your returns, but the best income TFSA investors can receive is from long-term holding. So by using this method, you can create passive income to use now, but without missing out on long-term returns.

The stock I would choose

A solid option for this turbulent market is Transcontinental (TSX:TCL.A), a Canadian printer and packaging provider. Yet TFSA investors may notice that over the last few years, shares haven’t done all that well. Transcontinental stock is down 46% in the last five years. But this performance comes down to a decision made back in September 2018, when the company divested its financial industry publications from Contex Media and Newcom Media to focus on its consumer packaging business.

Investors weren’t happy, and since then shares have been down. Even in the last year, shares are down 11% as the economic downturn continues. However, analysts are suggesting now is therefore a great time to get in on this top stock – especially for passive income.

Earnings and recommendations

During its first quarter, Transcontinental stock increased revenue by 12% year over year to $3 billion. Net income was up 8.1% from full-year 2021, though its profit margin was down 0.1% from higher costs. Even still, earnings per share also came in higher at $1.63, beating analyst estimates.

Analysts weighed in on the stock suggesting it may actually outperform, and there is now significant value there with cost pressures easing. Downside risks are currently reflected in the share price, and after a potential recession this summer the company should see a large increase in share price.

Shares are now trading at 10.2 times earnings, and TCL.A offers a dividend yield at 6.22%. So if you want a higher-than-normal dividend yield with upside potential, now is the time to buy.

Now, and later

Let’s say you used your contribution room of $6,500 to put towards Transcontinental stock today. You then start collecting dividends along the way, and hold your shares for the next year. Here is what that could look like on the TSX today for TFSA investors seeking passive income.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYTOTAL PORTFOLIO
TCL.A – now$14.50448$0.90$403.20quarterly$6,500
TCL.A – 52-week highs$18448$0.90$403.20quarterly$8,068

As you can see, investing in 448 shares right now could bring $403.20 in passive income every year. That’s while this stock still trades at a steal, and with shares easily making their way back to 52-week highs. When the economy starts to recover, which should certainly happen by the second quarter, TFSA investors may wish they hadn’t hesitated to pick up this top passive income stock.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Transcontinental. The Motley Fool has a disclosure policy.

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