Are you having trouble managing your expenses with just Canada Pension Plan (CPP) and your Registered Retirement Income Fund (RRIF) withdrawals? You can make your Tax-Free Savings Account (TFSA) portfolio pay you tax-free passive income without affecting your lump sum.
How can pensioners plan a TFSA passive income?
Over the years, you invested in your TFSA to generate wealth. If you succeeded in building up to a $100,000 – $500,000 portfolio over these years, you can invest a portion of this amount in dividend stocks that are less volatile. The fixed-income securities might give you high returns in a high interest rate environment. But that will reduce when the interest rate falls. Moreover, their returns won’t grow with inflation.
Hence, invest a portion of your retirement pool in dividend stocks. Some stocks can give you regular payouts for years, grow them with inflation, and also keep your principal investment stable or grow it gradually. And because these stocks are in your TFSA, dividends will be tax free.
Two cheap dividend stocks for TFSA passive income
I have identified two stocks ideal for pensioners to start collecting TFSA passive income. As these stocks are near their lows, your invested amount has a higher probability to grow.
CT REIT
CT REIT (TSX:CRT.UN) stock has dipped 11% since February and is trading closer to its 52-week low of $14.21. The dip came as the market moved towards tech stocks after the U.S. Fed paused interest rate hikes. CT REIT stock is closer to being oversold, making it an attractive buy.
Unlike other real estate investment trusts (REITs), CT REIT is more stable, as it has the backing of its parent Canadian Tire. The retailer leases all its retail property from CT REIT and undertakes any expansion and development of shops through the REIT. More than 91% of CT REIT’s rental income comes from Canadian Tire, which has a weighted average lease term of 8.8 years.
Moreover, the REIT maintained its distribution payout ratio at a safe level of 73.8% in the first quarter, hinting that it can sustain distribution growth. It has been growing its distributions since 2013, even in the pandemic and weak macro environment. It increased its annual distribution by 3.5% to $0.89821.
So, if you invest $25,000, you can buy 1,690 shares of CT REIT that will start paying $1,518 ($0.89821 x 1,690 shares) per year.
TC Energy stock
TC Energy (TSX:TRP) is a pipeline stock trading closer to its 52-week low of $50.7. The stock fell, as two of its major projects got caught in the negative limelight, the Keystone pipeline’s major oil leak and the Coastal GasLink pipeline’s overbudget.
Recently, many energy companies, including TC Energy, cut jobs to optimize their cost. But that does not affect the pipeline company’s dividend-paying capacity. It laid off 1,500 construction jobs in 2021 after cancelling the Keystone XL Pipeline extension. But it still grew dividends by over 3% in 2022 and 2023.
The company has been selling off assets and investing in gas pipelines to tap the opportunity of North America’s liquefied natural gas exports to Europe. It is gradually reducing its dependence on oil and focusing on gas, which has accelerated its capital spending and reduced its dividend growth.
But the stock has ample room to grow dividends, as the new pipelines become operational and contribute to dividend growth. Now is a good time to buy the stock in an energy downturn and lock in a 6.9% dividend yield.
So, if you invest $25,000 in TC Energy, you can buy 466 shares that will start paying $1,733 ($3.72 x 466 shares) per year in dividends and even grow this amount every year by 3% or more.
Safe-keeping your invested money
TC Energy stock hovers between $52 and $72. CT REIT hovers between $14 and $17. As they trade closer to the lower range, your $25,000 investment in each might fall to $24,232 and $23,660, respectively, in a bear market. But the annual dividend will offset the downside and still give inflation-adjusted TFSA passive income.
