If you have been following the TSX markets, you know that dividend stocks have been falling as high interest rates forced many debt-heavy companies to slash dividends. However, fundamentally strong dividend stocks that can sustain a 5% interest rate without cutting their payouts also fell. It is time to invest in such stocks and boost your Tax-Free Savings Account (TFSA) passive income.
How to build onto your TFSA passive income
The first step is to choose at least two dividend stocks from different sectors you might want to invest for at least 10 years.
The next step is to find a reason you are bullish on these stocks. When the reason for your bullishness fades, you can exit the stock and invest that money in other stock.
Once you know where to invest, determine the average price you are comfortable buying the stock. To derive a practical price, you could look at the last five years’ stock price graph and draw a horizontal line at a point where the stock generally trades.
The final step is to determine your investment amount. If it is $6,000, consider investing $500 every month or $1,000 every two months. You can change your investment frequency depending on how the stock moves.
Two dividend stocks for your TFSA passive income
I have identified two stocks with a 3% dividend compounded annual growth rate (CAGR) and a 5-6% average dividend yield.
Enbridge’s (TSX:ENB) low-risk business model helps it earn stable cash flows from toll money. The management pays out 60-70% of its distributable cash flow (DCF) as dividends, and they increase this DCF by increasing the toll rate and building new pipelines. It aims to grow its DCF by 3-5% over the coming years.
Enbridge stock generally hovers in the $44-$55 price range. I took an average price of $50 for the stock. If you invest $500 a month, you might get the stock for $45 in some months and $55 in some. All you have to ensure is the average cost per share comes to $50. Now is an apt time to buy Enbridge stock at $47.
CT REIT (TSX:CRT.UN) is another resilient stock as it has the backing of a resilient parent Canadian Tire. The real estate investment trust (REIT) earns more than 90% of its rental income from Canadian Tire and uses 70% of the money to pay distributions and reinvest the rest to develop and buy stores from the retailer and third-party owners.
Since occupancy is not a concern, it is among the few REITs that grew distribution at a 3% CAGR even during the pandemic and rate hike. The REIT stock price has slipped to its low in the high interest rate environment.
Invest $500 and get $538 a month
| Year | Enbridge Share count @$50/share | Enbridge Dividend per share (3% CAGR) | Enbridge dividend | CT REIT Share Count @ $16/share | CT Total Share count | CT REIT Dividend per share (3% CAGR) | CT REIT dividend | Total dividend |
| 2024 | 120 | $3.66 | $439.20 | |||||
| 2025 | 240 | $3.77 | $904.75 | 27 | 27 | $0.898 | $27.90 | $467.10 |
| 2026 | 360 | $3.88 | $1,397.84 | 57 | 84 | $0.925 | $84.93 | $989.68 |
| 2027 | 480 | $4.00 | $1,919.70 | 87 | 171 | $0.953 | $171.95 | $1,569.79 |
| 2028 | 600 | $4.12 | $2,471.62 | 120 | 291 | $0.981 | $291.98 | $2,211.68 |
| 2029 | 720 | $4.24 | $3,054.92 | 154 | 445 | $1.011 | $446.01 | $2,917.63 |
| 2030 | 840 | $4.37 | $3,670.99 | 191 | 636 | $1.041 | $637.04 | $3,691.96 |
| 2031 | 960 | $4.50 | $4,321.28 | 229 | 865 | $1.072 | $866.07 | $4,537.07 |
| 2032 | 1080 | $4.64 | $5,007.29 | 270 | 1,135 | $1.105 | $1,136.10 | $5,457.39 |
| 2033 | 1200 | $4.78 | $5,730.56 | 313 | 1,448 | $1.138 | $1,449.14 | $6,456.43 |
You can make Enbridge your primary investment and invest $6,000 annually at an average price of $50. Ten years of regular investment can build your pool to 1,080 Enbridge shares. Assuming the company maintains its 3% dividend CAGR, the dividend per share will grow to $4.5 by 2032, which means 1,080 shares will earn $4,856 in annual dividends.
Instead of taking the payout, you can reinvest the dividend in CT REIT at an average stock price of $16 and accumulate 1,448 CT REIT shares that pay a $1,449 annual dividend. You can earn a combined dividend of $538 a month ($6,456/12).
