Living off a pension in this inflationary environment is a challenge. Inflation can eat up your retirement savings if you keep withdrawing. Instead, you can use this opportunity to preserve your life savings and grow your passive income from your Tax-Free Savings Account (TFSA).
I am emphasizing using the TFSA, as the payouts are tax free. If you have a good amount in your TFSA, you can buy a few dividend stocks trading near their lows. This way, you can lock in a higher dividend yield and take advantage of a recovery rally in the next three to five years.
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Two cheap TSX stocks for TFSA passive income
The TSX has several Dividend Aristocrats with a 4-6% average yield. But even the Aristocrats have their highs and lows.
A dividend stock to grow TFSA passive income
One such Aristocrat is TC Energy (TSX:TRP), which has built a history of paying regular quarterly dividends and even increasing them at a 7% compound annual growth rate (CAGR) for 23 years.
The pipeline company has run into troubles with two of its projects and taken a blow to its profits. The first is the existing project Keystone Pipeline, which suffered a major oil leak in December 2022. The biggest hit to its 2022 profit came from the $3 billion write-off for the incremental cost due to delays in the Coastal GasLink project. The project is 87% complete and is expected to complete by 2023.
These headwinds pulled TC Energy stock down 25% to $56.58, closer to its 52-week low of $50.7. Once the Coastal GasLink project starts churning toll money, it will gradually contribute to dividends. TC Energy has other projects in the pipeline, and they are on track. Moreover, the company is selling $5 billion worth of assets and will use the proceeds to pay off debt. Over time, an increase in cash flow and profit could revive the stock price and increase it to its bullish price of over $63.
A dividend stock for monthly passive income
Real estate investment trusts (REITs) are a popular choice for monthly payouts, as they pass on their rental income to shareholders. There are perks and challenges of owning and maintaining an income-generating property if you are a landlord. But with REITs, you get more perks and fewer headaches.
Choice Properties REIT (TSX:CHP.UN) is a natural choice, as it is the landlord of Loblaw. Of the 703 properties Choice owns and manages, 97.7% are occupied and earning rent. Of the total rent, 57% comes from Loblaw, with which the REIT has a 6.2-year lease. Its other tenants include groceries, pharmacies, banks, and more.
The REIT passes on the rental income to shareholders through monthly distributions. It has been a few years since the REIT has been paying distributions (2017), but it has not cut the payouts so far. And looking at the 81.8% payout ratio, it is unlikely to make any cuts.
The REIT’s share price hovers between $11 and $15, and you can lock in an over 5% yield.
How to increase your pension with these stocks
Your Canadian Pension Plan (CPP) can pay you $811/month. But if you invest $25,000 in TC Energy, you can buy 442 shares that will start paying you dividends from July 31 onwards. You can get $1,644 in annual passive income that could grow by 3% for several years.
A $15,000 investment can buy you 1,029 shares of Choice Properties REIT and start paying $64 in monthly passive income from June onwards. You can grow your $811 CPP to $1,012 while keeping your $40,000 investment intact, with 7-10% stock price fluctuation.
