The Tax-Free Savings Account (TFSA) is one of the best, if not the best, investment vehicle for income-focused investors and wealth-builders. Its most remarkable feature is that all income earned inside the account from income-producing assets like stocks is safe and secure from taxation.
Users can meet short- and long-term financial goals or even aim for a specific amount of tax-free income. For example, making $1,000 monthly from a TFSA is possible, but not instantly. The Canada Revenue Agency (CRA) sets some boundaries for accountholders, including annual contribution limits.
The catch
Producing $12,000 in annual dividends requires a significant amount of capital. To generate $1,000 every month, you must own $240,000 worth of shares that yield 5%. Assuming the dividend is 4%, the investment amount must be $300,000.
Unfortunately, you can’t make a substantial upfront investment in a TFSA due to the annual contribution limits. Assuming the annual contribution limit is constant at $6,500, you might have to maximize your annual limits for 36 years to achieve the target. However, don’t lose heart because building wealth is a slow burn and takes time.
There are established dividend payers that pay lucrative dividends or yield more than 5%. TC Energy (TSX:TRP) is ideal in a TFSA and a viable option for TFSA investors. At $47.61 per share (-6.89% year to date), the energy sector constituent pays a 7.8% dividend. The high yield lowers the total investment amount ($153,846) and shortens the period (23.7 years) to realize $1,000 in passive income per month.
Dividend aristocrat
TC Energy has no formal dividend policy, and all dividend declarations and payments are at the sole discretion of the Board of Directors. Fortunately, TC’s Board has always satisfied shareholders. This top-tier energy stock is a dividend aristocrat owing to 23 consecutive years of dividend increases.
The $47.6 billion energy infrastructure company is a major player in North America’s oil and gas midstream industry. TC Energy has been around for over 70 years and operates vital pipelines, storage facilities, and power-generation plants in Canada, Mexico, and the United States.
TC Energy targets annual dividend growth of 3% to 5% and will rely on the complementary infrastructure assets, secured growth projects ($34 billion), and several projects under development to support management’s dividend guidance. The primary goal is to deliver growing returns to investors for decades.
Unlocking more value for investors
TC Energy completed a two-year strategic review and a plan to spin off its Liquids Pipelines business emerged. One company will separate into two independent, investment-grade, publicly listed companies. Besides fully capturing opportunities in the long term, the move should unlock value for investors.
The transaction requires certain approvals and conditions before it becomes final. According to management, TC Energy and the new Liquids Pipelines Company can pursue their growth objectives independently. Moreover, investors should welcome two high-quality energy industry leaders.
Patience and dividend reinvestment
Patience and reinvestment of dividends will reward TFSA investors with healthy long-term returns and $1,000 in monthly tax-free income. A stock with high and sustainable yields like TC Energy can help you make it all possible.
