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

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

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.