TFSA Couples: Earn $5,650 in Tax-Free Income This Year

Here’s how investing in high-yield TSX dividend stocks can help you earn a tax-free stream of passive income for life.

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In the last two years, inflation and rising bond yields have impacted the savings rates for Canadian households. For example, according to a report from Bank of Montreal, basic monthly living expenses have risen by $397 year over year in 2023. Further, 68% of respondents stated their finances have been hit due to economic conditions.

These factors make it difficult for individuals to increase their savings. Despite these headwinds, average TFSA (Tax-Free Savings Account) balances have risen by 9% to $41,510, up from $38,046 in 2022 and $30,921 in 2020.

While TFSA balances have risen in recent years, it is essential for investors to put their savings to use. For instance, around 47% of TFSA holders have their savings in cash, thereby missing out on opportunities for enhanced tax-free growth.

Canadians should know that the TFSA can be used to hold stocks, bonds, mutual funds, GICs (Guaranteed Investment Certificates) as well as exchange-traded funds. Moreover, any returns generated in a TFSA from qualified investments are exempt from taxes.

So, let’s see how TFSA couples can earn $5,600 in tax-free income in the next 12 months.

Enbridge stock

Enbridge (TSX:ENB) is a Canada-based energy infrastructure company that offers you a yield of 7.8%. Moreover, the energy giant has increased dividends by 9.5% annually in the last 28 years, showcasing the resiliency of its cash flows.

Despite a challenging macro environment, Enbridge increased adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 6% year over year in 2023. Comparatively, distributable cash flow rose by 3%, resulting in a similar dividend hike for investors.

Priced at 16 times forward earnings, ENB stock is quite cheap and is forecast to surge by 18% in the next 12 months. Enbridge’s steady cash flows, inflation-linked contracts, widening cash flows, and capital expenditures make it the top investment choice for dividend investors right now.

Brookfield Renewable Partners stock

A clean energy behemoth, Brookfield Renewable Partners (TSX:BEP.UN) is trading 48% from all-time highs, increasing its dividend yield to 5.8%. Brookfield continues to invest heavily in widening its base of cash-generating assets, which should support further dividend hikes.

In 2023, its funds from operations (FFO) rose by 7% to US$1.67 per share. Comparatively, it paid shareholders a dividend of US$1.35 per share, providing it with some room to lower balance sheet debt and target accretive acquisition.

Brookfield’s cash flows are resilient, and it expects to grow FFO by 10% annually through 2028, allowing it to raise dividends between 5% and 9% each year in this period.

In addition to its high dividend, BEP stock trades at a discount of 25% to consensus price target estimates.

The Foolish takeaway

Brookfield Renewable$32.501,277$0.475$607Quarterly

Given the average TFSA balance stands at $41,510, the number should double for couples to $83,020. This investment distributed equally in the two TSX stocks discussed here should help you earn over $5,650 in annual dividends. In case the payouts rise by 7% each year, your dividends should double in the next 10 years.

While investing such a huge sum in just two stocks is risky, you need to identify other companies with strong financials, a tasty dividend, and a growing earnings base and diversify your portfolio in the process.

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 Brookfield Renewable Partners and Enbridge. The Motley Fool recommends Brookfield Renewable Partners and Enbridge. The Motley Fool has a disclosure policy.

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