The COVID-19 pandemic spurred many Canadians who were nearing retirement to accelerate their plans. Instead of committing to a remote work project, many older Canadians elected to hang up their spurs and start their post-work life. Unfortunately, soaring inflation rates have put pressure on retirees. That previously safe nest egg may look more vulnerable than it did when you decided to enter retirement.
Today, I want to explore how you can churn out big passive income entirely tax free. To accomplish this, we will be building our passive-income portfolio in a Tax-Free Savings Account (TFSA). Let’s jump in.
Retirees should target this green energy beast in their TFSA
TransAlta Renewables (TSX:RNW) is a Calgary-based company that owns, develops, and operates renewable and natural gas power generation facilities and other infrastructure assets in Canada, the United States, and around the world. Shares of this renewable energy stock have increased 1.7% month over month as of close on May 4. The stock is up 11% so far in 2023. Readers can get a more detailed look with the interactive price chart below.
In the fourth quarter (Q4) of fiscal 2022, TransAlta Renewables reported total revenues of $154 million compared to $138 million in Q4 fiscal 2021. Meanwhile, it posted full-year fiscal 2022 total revenues of $560 million — up from $470 million in the previous year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose to $487 million over $463 million in fiscal 2021.
Shares of TransAlta Renewables last had a price-to-earnings (P/E) ratio of 45, putting this stock in solid value territory at the time of this writing. Meanwhile, the stock offers a monthly distribution of $0.078 per share. That represents a very attractive 7.4% yield. This is a stock worth stashing in your TFSA today.
Don’t sleep on this REIT that can help churn out big passive income
Retirees should also look to real estate investment trusts (REITs) to deliver big passive income. Chartwell Retirement REIT (TSX:CSH.UN) is a Mississauga-based REIT that owns and operates a complete range of seniors housing communities from independent supportive living through assisted living to long-term care. This REIT has jumped 7.4% month over month. That pushed the stock into the black for the year-to-date period.
This REIT released its final batch of fiscal 2022 results on March 2, 2023. It posted resident revenue of $661 million — up from $627 million in fiscal 2021. Meanwhile, net income climbed to $49.5 million compared to $10.1 million in the previous year.
Chartwell Retirement REIT last paid out a monthly distribution of $0.051 per share, which represents a super tasty 6.9% yield.
Retirees can round out their TFSA with this monthly dividend stock
Extendicare (TSX:EXE) is the third and final dividend stock I’d target for a passive-income-oriented TFSA. This Markham-based company provides care and services for seniors in Canada. Shares of Extendicare have dropped 1.8% so far in 2023. The stock is down 9.9% year over year.
In Q4 fiscal 2022, this company saw average long-term-care (LTC) occupancy improve by 100 basis points to 94.5%. Meanwhile, adjusted EBITDA plunged $15.3 million to $9.2 million. For the full year, Extendicare it posted revenue growth of 4.7% to $1.22 billion.
Shares of Extendicare are trading in favourable value territory compared to its industry peers. It offers a monthly dividend of $0.04 per share, representing a very strong 7.4% yield. This is a passive-income stock that retirees can rely on in their TFSA.