Investing in shares of fundamentally strong Canadian companies with a track record of stellar dividend payments can help you earn steady passive income. Furthermore, several high-quality dividend stocks have been consistently increasing their dividends for years, implying investors can start an income stream that will grow over time. Notably, investors can leverage the TFSA (Tax-Free Savings Account) to earn tax-free income.
Against this background, let’s look at three Canadian stocks that are reliable investments to earn tax-free passive income regardless of market conditions. Further, one can make about $1,092/year tax-free by investing in these stocks near the current market price.
Canadian Natural Resources
Investors seeking dependable stocks to earn a tax-free income could consider shares of Canadian Natural Resources (TSX:CNQ). This oil and natural gas company has grown its dividend for 24 consecutive years. What stands out is that the company’s dividend sports a compound annual growth rate of 21% since inception.
Canadian Natural Resources’s large and high-value reserves, diversified and long-life assets, and efficient operations drive its cash flows and dividend payments. Moreover, its strong balance sheet, low debt-to-adjusted funds flow ratio, and low maintenance capital requirements position it well to generate solid earnings and return cash to its shareholders.
Looking ahead, Canadian Natural Resources is focused on increasing shareholder returns via higher dividend distributions. Meanwhile, it currently offers a yield of 4.54%, calculated on its closing of $88.19 on February 23.
Enbridge
TFSA investors could consider shares of the energy infrastructure company Enbridge (TSX:ENB) to earn tax-free income. The company transports oil and gas and has a diversified revenue base supporting its quarterly dividend distributions. Notably, Enbridge has paid dividends for nearly 69 years. Further, it raised the quarterly dividend for 29 consecutive years. It offers an impressive yield of 7.79%, while its payout ratio of 60 to 70% of distributable cash flow (DCF) is sustainable in the long term.
Enbridge’s attractive dividend payment and growth history demonstrate its ability to generate solid DCF in all market conditions. The company is poised to return significant cash to its shareholders in the coming years. Its highly utilized asset portfolio, power-purchase agreements, cost-of-service tolling arrangements, and a secured backlog of $25 billion of growth projects position it well to generate solid distributable cash flows, covering its future dividend payouts.
Also, its continued investment in conventional and renewable energy assets and strategic acquisitions position it well to capitalize on the energy demand. Overall, Enbridge is a top stock for making a worry-free income.
Fortis
Shares of the electric utility company Fortis (TSX:FTS) are a must-have in your income portfolio. It owns a defensive business, which generates predictable cash flows supporting its quarterly payouts. Fortis has increased its dividend for 50 consecutive years. Meanwhile, it offers a well-protected yield of 4.44%.
Looking ahead, Fortis’s rate base is forecasted to expand at an average annualized growth rate of 6.3% through 2028 and reach $49.4 billion. Thanks to the growing rate base, the utility giant expects to grow its dividend by 4-6% per annum during the same period.
Its low-risk business, predictable cash flows, and visibility over future dividend payouts make it a top passive-income stock.
Bottom line
These companies are reliable investments to earn steady passive income. Further, they offer an average yield of 5.6%. Meanwhile, investors should note that the annual TFSA dollar limit for 2024, 2023, and 2024 are $7,000, $6,500, and $6,000, respectively, totalling $19,500. Thus, an investment of $19,500 distributed equally in these stocks could help you generate a tax-free passive income of $1,092/year.
