Passive Income: How to Make Almost $2,500 Per Year Tax Free

Creating a steady stream of passive income can help you accelerate your financial goals. Investing in quality dividend stocks is one such way to earn a reliable passive-income stream.

Typically, the best dividend stocks pay shareholders a regular dividend and increase these payouts over time. You also stand to benefit from long-term capital gains. Moreover, if these stocks are held in a TFSA (Tax-Free Savings Account), these gains will be exempt from Canada Revenue Agency taxes.

Here are three TSX stocks that can help TFSA investors earn close to $2,500 annually.

Brookfield Asset Management stock

One of the largest and fastest-growing asset managers globally, Brookfield Asset Management (TSX:BAM) is valued at a market cap of $18 billion. With US$825 billion in assets under management, or AUM, it operates in 30 countries across five continents.

Further, 50% of its AUM generates fees allowing the company to pay shareholders an annual dividend of $1.74 per share, indicating a forward yield of 4.1%.

Armed with a debt-free balance sheet, Brookfield Asset Management has a payout ratio of 90%. Additionally, it expects fee-related earnings between 15% and 20% each year, allowing it to increase its dividend at a consistent pace.

Brookfield’s business is designed to leverage its operating expertise and identify compelling opportunities across sectors such as renewable power, infrastructure, real estate, and credit.

Investors are also looking to diversify investments by allocating a portion of their funds toward alternative asset classes. In fact, BAM expects AUM for alternative asset classes to grow from US$4 trillion in 2010 to US$23.2 trillion in 2026, allowing it to benefit from secular tailwinds.

Canadian Natural Resources stock

A TSX energy giant, Canadian Natural Resources (TSX:CNQ) offers a forward yield of 4.8%. Despite the cyclical nature of the oil sector, CNQ has increased dividends by 20% annually in the last two decades, showcasing the resiliency of its cash flows.

Higher oil prices in 2022 allowed Canadian Natural Resources to lower net debt significantly in the last 12 months. After accounting for dividends and capital expenditures, the company generated a free cash flow of $1.4 billion in the first quarter (Q1) of 2023.

CNQ stated, “With ample liquidity on our balance sheet, we can add production with minimal capital while generating significant returns on capital and maximizing shareholder value.”

Priced at 10 times forward earnings, CNQ stock trades at a discount of 20% to consensus price target estimates.

TC Energy stock

The final TSX dividend stock on my list is TC Energy (TSX:TRP) which provides a dividend yield of 6.7%. A midstream energy infrastructure company, TC Energy operates a wide network of pipelines. Its cash flows are stable and backed by long-term contracts that are regulated and tied to inflation.

A low-risk business model has allowed TC Energy to increase dividends for 23 consecutive years. It distributes around 50% of cash flows via dividends and the rest towards capital expenditures, which would drive future earnings higher.

TRP stock is priced at a discount of 10% to consensus price target estimates.

The Foolish takeaway

To earn $2,500 in annual dividends, you need to invest $16,000 equally in these three TSX stocks. If these companies increase dividends by 7% annually, your payout could double in the next 10 years.