Have you ever thought about generating passive income? Through the stock market, that’s very attainable. Many Canadians invest in dividend stocks to help them generate passive income. Unlike other forms of investments that can generate additional income for you, dividend stocks have a very low barrier to entry. In addition, they truly are a passive source of income.
By investing within a Tax-Free Savings Account (TFSA), investors are able to snowball their portfolios much quicker. As its name suggests, any gains generated within a TFSA can be withdrawn tax-free. By reinvesting the dividends you receive, you could see your source of passive income grow at surprisingly fast rates.
In this article, I discuss two TSX stocks that you should buy in your TFSA if you wish to earn $5,000 per year in passive income.
Invest in this reliable dividend company
When I think of a solid dividend stock to hold in a TFSA, Bank of Nova Scotia (TSX:BNS) is often one of the first companies that comes to mind. If you live in Canada, this company needs very little introduction. Bank of Nova Scotia is well known for being one of the Big Five Canadian banks. It’s one of the largest banks in the country in terms of revenue, assets under management, and market capitalization.
Bank of Nova Scotia, in my opinion, stands out among its peers for its outstanding focus on international growth. The company is well positioned within the Pacific Alliance, which could drive much of its growth over the coming years.
In terms of its dividend, Bank of Nova Scotia is outstanding. The company started paying shareholders a dividend in 1833. Since then, it has never missed a dividend payment. That represents 190 years of continued dividend distributions. In addition, Bank of Nova Scotia currently offers investors an annual dividend of $4.24. Therefore, in order to generate $5,000 of passive income annually, investors will need to buy 1,180 shares. At a forward dividend yield of 6.94%, you’d be getting really good value for your money.
One of the best dividend stocks around
Investors should also consider buying shares of Fortis (TSX:FTS) in their TFSAs. For those that are unfamiliar, this company provides more than three million customers across North America with regulated gas and electric utilities. What’s fascinating about utility companies is the fact that those businesses tend to generate revenue on a recurring basis. That provides them with a very predictable source of cash that the company can then pull from to generate dividends for investors.
Speaking of dividends, Fortis is one of the best dividend-paying stocks in the country. It has managed to increase its dividend distribution in each of the past 50 years. Fortis has already announced its plans to continue increasing its dividend through to 2028 at a rate of 4% to 6%. With a forward dividend of $2.36 per share, investors will need to buy 2,119 shares of this stock to generate $5,000 of passive income annually.