The TFSA (Tax-Free Savings Account) is a good place to invest in stocks for passive income. When you invest in the account, all income stays with you because there is no tax liability. In fact, by investing with your TFSA (and paying no tax), you will keep up to 25% more of the income that you earn.
A great formula for building wealth is to collect your dividends, re-invest them into dividend paying stocks, and then re-invest them into more dividend stocks. Over time, your income will compound, and you could build out a substantial income stream.
Say you are starting off with $15,000 to invest in your TFSA. Here is a three-stock portfolio that could earn more than $700 per year to compound your TFSA passive income streams.
A top energy stock for a TFSA
Canadian Natural Resources (TSX:CNQ) might be one of Canada’s best dividend stocks. This company has found a way to deliver very stable results over long periods.
Firstly, it operates with a factory-like efficiency. It can fund its dividend and produce excess cash even when oil is around US$40 per barrel.
Secondly, it has excellent assets. Not only can it produce oil at a very low cost, but it also has multi-year reserves that can be unlocked at only minimal cost. It helps that it has a top-class management team that is invested alongside shareholders.
This TFSA stock pays a 4.89% dividend yield. It has increased its dividend consecutively for 24 years by a 21% compounded annual rate. A $5,000 investment in CNQ today would earn $61.30 every quarter or $245.20 annually.
A top real estate stock for income
One way to own tax-free real estate is by buying real estate investment trusts (REITs) in your TFSA. First Capital REIT (TSX:FCR.UN) is an interesting play for both value and income. It operates a very attractive 22 million square foot portfolio of prime retail real estate in Canada.
It has a very resilient mix of essential tenants that include grocery stores, value goods, hardware, banking, liquor, and pharmacy. The REIT tends to grow its operating income by about the rate of inflation.
The key is that it has significant land capacity to grow its footprint. It has 23 million square feet of development potential that is hardly factored into the stock price.
This REIT earns a 5.22% dividend yield. Put $5,000 to work in First Cap stock and it would earn $21.64 monthly, or $259.72 annualized.
A top financial stock for a TFSA
Royal Bank of Canada (TSX:RY) is another excellent stock for income in your TFSA. With a market cap of $184 billion, it is the largest stock in Canada. While it is the largest, it is also one of the best quality financial stocks in the country.
It has a diversified offering of services across Canada and the U.S. The bank has an exceptional balance sheet, and it is very well capitalized. As a result, it can be opportunistic and take business when other banks are pulling back. One can expect it will continue to be a top bank for many years ahead.
This stock yields 4.2% today. If you bought $5,000 of Royal Bank stock in your TFSA, it would earn $52.44 quarterly, or $209.76 annualized.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Canadian Natural Resources | $60.82 | 82 | $0.7475 | $61.30 | Quarterly |
| First Capital REIT | $16.54 | 302 | $0.0717 | $21.64 | Monthly |
| Royal Bank of Canada | $131 | 38 | $1.38 | $52.44 | Quarterly |
