How to Use Your TFSA to Earn $1,000 Per Year in Passive Income

The Tax-Free Savings Account, or TFSA, can be used to hold a portfolio of quality dividend stocks and create a stable stream of recurring income. In addition to regular payouts, dividend stocks also help you benefit from capital gains over time, both of which are exempt from Canada Revenue Agency taxes if held in the TFSA.

The TFSA is a popular registered account in Canada, with a cumulative contribution limit of $88,000 in 2023. Moreover, any unused TFSA contribution room can be carried over to subsequent years, allowing you to increase dividend payments at a consistent pace.

Let’s see how much you need to invest in these two top TSX stocks to earn $1,000 in annual passive income.

Brookfield Renewable Partners stock

Down 52% from all-time highs, Brookfield Renewable Partners (TSX:BEP.UN) currently offers you a tasty dividend yield of 6.3%. Investors are worried about Brookfield’s debt-heavy balance sheet and its ability to service interest rates amid rate hikes. However, valued at a market cap of $20 billion, BEP is among the largest clean energy companies in the world and generates stable cash flows across market cycles.

Brookfield Renewable has a portfolio of hydro, wind, and solar assets that currently generate 32 gigawatts of power. Additionally, it has a development pipeline of future projects, which will expand its capacity to over 150 gigawatts, driving future cash flows and earnings higher.

Due to its massive drawdown in share prices, BEP stock trades at a discount of 55% to consensus price target estimates.

Dream Industrial REIT

A real estate investment trust (REIT) that currently offers a yield of 5.4%, Dream Industrial (TSX:DIR.UN) owns, manages, and operates a portfolio of 321 industrial assets totalling 70.3 million square feet of gross leasable area. These properties are located in Canada, Europe, and the U.S., which diversifies your exposure to the real estate market.

Dream Industrial aims to deliver returns through stable cash flows, which are underpinned by its high-quality portfolio and an investment-grade balance sheet while driving growth in net asset value and cash flows.

Dream Industrial REIT ended the second quarter with total assets of $7.8 billion, an increase of almost 7% year over year. Its diluted funds from operations, or FFO, rose 14% to $0.25 per unit. Given the REIT pays shareholders a quarterly dividend of $0.174, it indicates a payout ratio of less than 70%, providing it with the flexibility to increase dividends, de-lever its balance sheet, and reinvest in capital projects.

Its comparative properties’ net operating income was up 11.4% at $78.5 million, while net rental income surged 20.8% to $83 million in the June quarter.

In addition to its tasty dividend yield, Dream Industrial REIT also trades at a discount of over 30% to consensus price target estimates.

The Foolish takeaway

In case you want to earn $1,000 in annual passive income, you need to invest a total of $18,000 distributed equally in these three TSX stocks. If the companies increase dividends by 10% annually, your payout would double by the end of this decade.

You need to identify similar stocks, create a diversified portfolio of blue-chip dividend stocks, and benefit from steady payouts in 2023 and beyond.