The TFSA (Tax-Free Savings Account) is a great account to earn passive income. You don’t pay tax on any of the dividends, interest, or capital gains you earn in the TFSA. By investing in your TFSA, you can save as much as 20% of your dividend income by not paying tax.
Likewise, you don’t have to pay any tax when you withdraw from the TFSA. It is the simplest tax-free way to earn money in Canada. Now, there are certain rules you need to follow. But if you are looking to build a steady, tax-free passive-income stream for retirement, the TFSA is ideal.
In fact, with as little as $60,000, you could earn an average of $250 or more ($271.98 per month to be exact) of income per month. Give it time, some dividend growth, and re-invest those dividends, and you could be earning significantly more in a few years.
Three stocks that could help you get there are TELUS (TSX: T), Pembina Pipeline (TSX: PPL), and Dream Industrial Real Estate Investment Trust (TSX: DIR.UN).
A unique telecom for any TFSA
With a market cap of $40 billion, TELUS is one of Canada’s top Dividend Aristocrats. It’s worth a mention for any TFSA portfolio looking for income. It pays a 5.17% dividend yield. A $20,000 investment in TELUS would earn $262.88 quarterly, or $87.63 monthly.
In fact, TELUS just increased its quarterly dividend by 7.4%. That is TELUS’s 24th dividend increase since 2011. TELUS recently delivered a decent quarter, but the stock pulled back on worries about higher competition and pricing pressure.
Yet TELUS is diversified. It is the only telecom stock that has invested in a variety of digital vertical businesses that significantly widen its services offering. For this, TELUS continues to be a unique Canadian stock for steady dividend growth.
Infrastructure of big dividends
Pembina Pipeline is the TFSA stock to check out if you want a safe, but slightly higher dividend. Pembina operates a processing and transportation network for the Canadian energy sector. Energy producers must have egress and processing options to get their oil and gas to market. Pembina’s assets are absolutely essential to its customers.
That is why over 85% of its assets have long-term contracts. Its 6.15% dividend is completely covered by contracted cash flows. Pembina has one of the best balance sheets among its energy infrastructure peers. Its dividend certainly looks sustainable. It just increased its dividend by 2.3%, which is its second increase since last year.
If you invested $20,000 into Pembina stock, you would earn $304.38 quarterly, or $101.46 averaged monthly.
Own real estate in your TFSA
Real estate has been a great asset for long-term investors. Unfortunately, you can’t hold real estate assets directly in a TFSA.
However, you can own a real estate investment trusts (REITs), like Dream Industrial REIT. Dream has a large portfolio of multi-tenanted industrial properties across Canada and Europe. It also manages two high-quality joint-venture portfolios.
Dream has been delivering high single-digit funds from operation (FFO) per-unit growth for the past several years. It just announced a quarter where FFO per unit grew by 13%.
Right now, this TFSA stock pays a 5% dividend yield. A $20,000 investment in Dream would earn $82.89 every single month. The dividend is very well covered by its generated cash flows, so it should be very safe.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| TELUS | 27.65 | 723 | $0.3636 | $262.88 | Quarterly |
| Pembina Pipeline | 43.83 | 456 | $0.6675 | $304.38 | Quarterly |
| Dream Industrial REIT | 14.07 | 1,421 | $0.05833 | $82.89 | Monthly |
