How to Earn an Enormous Passive Income That the CRA Can’t Tax

TFSA investors can consider holding quality TSX dividend stocks to create tax-free passive income for life.

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One low-cost way to begin a steady and predictable stream of passive income is by investing in blue-chip dividend stocks. As dividend payouts are not guaranteed, it is crucial to identify companies that enjoy economic moats, such as pricing power and higher profit margins, allowing them to generate cash flows across market cycles.

In addition to regular dividend income, investors should also benefit from long-term capital gains. Moreover, if these stocks are held in a TFSA (Tax-Free Savings Account), both dividends and capital gains are sheltered from Canada Revenue Agency (CRA) taxes.

The TFSA (Tax-Free Savings Account) contribution room has increased to $7,000 in 2024, bringing the total TFSA limit to $95,000. So, let’s see how Canadian investors can earn $2,000 in annual dividends with less than $40,000 in TFSA savings.

Enbridge stock

Enbridge (TSX:ENB) is a popular TSX dividend stock that currently offers you a tasty yield of 7.5%. In addition to its high yield, income-seeking investors might like Enbridge due to its consistent dividend hikes. Enridge is a Dividend Aristocrat and has raised dividends every year since 1995. These payouts have increased at an annual rate of 10%, which is exceptional for a blue-chip stock.

Enbridge is an energy infrastructure giant that owns and operates pipelines transporting oil, natural gas, and natural gas liquids. It enters into long-term inflation-backed contracts with energy producers, shielding Enbridge from fluctuations in commodity prices.

An investment-grade balance sheet, attractive valuation, and a sustainable payout ratio make Enbridge a top dividend stock to own right now.

Manulife Financial stock

Valued at $51.5 billion by market cap, Manulife Financial (TSX:MFC) is another TSX heavyweight offering a yield of more than 5%. Manulife Financial is part of the insurance sector, which is fairly recession resistant.

Despite several macro challenges, Manulife’s APE (annualized premium equivalent) sales grew by double digits year over year in the third quarter (Q3). It ended the September quarter with a return on equity of 16.8%, ahead of its medium-term target of 15%.

Manulife pays shareholders an annual dividend of $1.46 per share. These payouts have almost tripled in the last 14 years.

Telus stock

The final TSX stock on my list is Telus (TSX:T), which offers a forward yield of more than 6%. Telus is a telecom behemoth and is part of a mature market, allowing it to generate stable cash flows. Due to the resiliency of its earnings, Telus has doubled its dividend payout in the last decade.

Strong demand for its bundled services meant Telus achieved its strongest quarter of telecom customer growth as net additions grew 17% to 406,000 in Q3.

A widening customer base enabled Telus to grow revenue by 7% and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 5.5% in the September quarter.

Since 2004, Telus has returned over $24 billion to shareholders, including $19 billion in dividends. It aims to maintain the payout ratio between 60% and 75%, providing it with the flexibility to target capital growth projects and strengthen the balance sheet. Telus also aims to increase dividends between 7% and 10% annually in the next two years.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Enbridge$48.34$228$0.915$209Quarterly
Telus$24.62447$0.376$168Quarterly
Manulife$28.47386$0.365$141Quarterly

The Foolish takeaway

Investing $11,000 in each of these three TSX stocks should help shareholders earn $2,000 in dividend income each year. If the companies raise payouts by 7% annually, your dividend income should double to $4,000 in the next 10 years.

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 Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Enbridge and TELUS. The Motley Fool has a disclosure policy.

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