Passive Income: How to Earn $1,191/ Per Year Tax Free

Make $1,191/year in tax-free passive income with these top TSX dividend stocks.

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Investors seeking worry-free passive income could consider investing in the shares of fundamentally strong dividend stocks. Moreover, one can use the TFSA (Tax-Free Savings Account) to earn tax-free yields. Notably, dividend income earned in a TFSA is not taxed, making it an excellent vehicle to invest, earn tax-free passive income, and create wealth in the long term.

With this background, let’s look at two Canadian stocks that are reliable bets to start a passive income stream. Notably, by investing in these stocks through a TFSA, one can make $1,191/year tax free.

Enbridge

Passive income investors can rely on the shares of the energy infrastructure company Enbridge (TSX:ENB). Its resilient business model, diversified assets, solid dividend payments and growth history support my bull case. Further, its high yield is a positive. 

Enbridge has been paying a dividend for over 68 years. Moreover, it increased the same at a CAGR of 10% in the past 28 years. It’s worth highlighting that Enbridge paid and raised its dividend even amid the pandemic when most energy companies either reduced or suspended their payouts. While Enbridge’s distributions are well-covered, its target payout ratio of 60–70% of DCF (distributable cash flow) is sustainable. 

In summary, Enbridge’s diversified assets, long-term contracts, multi-billion-dollar secured projects, and power-purchase agreements will drive its DCF and future dividend payouts. Moreover, its ongoing investments in conventional and renewable energy assets position it well to capitalize on energy demand. Based on its closing price of $46.22 on November 27, Enbridge stock offers an attractive yield of 7.7%. 

Fortis 

Moving on to Fortis (TSX:FTS), which is among the most dependable stocks to earn worry-free passive income. The company operates a low-risk, regulated electric utility business, which ensures steady cash flow generation and covers its payouts. Thanks to its predictable cash flows, Fortis boasts a solid track record of consistently increasing its dividend payouts for decades. 

For instance, the utility company has now increased its dividend for 50 years. Moreover, it offers a yield of about 4.3% near the current price levels.

What stands out is that Fortis offers visibility over its future payouts. The expansion of its rate base will enable Fortis to grow its dividend at a decent pace in the coming years. Fortis expects its rate base to increase at a CAGR of 6.3% through 2028. Fortis anticipates growing its dividend by 4–6% annually during the same period. Its solid payout history, low-risk business model, and continued dividend growth make it a solid income play. 

Earn $1,191/year tax free  

Enbridge and Fortis are two reliable stocks to earn passive income for decades. Both these companies have resilient business models and well-covered payouts. Also, their focus on enhancing shareholders’ value is reflected through their solid dividend payments and growth histories. 

CompanyRecent PriceNumber of SharesDividendTotal PayoutFrequency
Enbridge$46.22216$0.887$191.59Quarterly
Fortis$55.50180$0.59$106.20Quarterly
Prices as of 11/27/23.

While Enbridge and Fortis are attractive income stocks, investors shouldn’t put all their cash in one or two stocks. Instead, one must diversify the portfolio to reduce risk. Meanwhile, the table above shows that if you invest $10K in each of these shares through your TFSA, you can earn about $297.79 in tax-free passive income every quarter, or $1,191.16 per year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge and Fortis. The Motley Fool has a disclosure policy.

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