How to Use Your TFSA to Earn $34,150 Per Year in Tax-Free Income

Canadian investors can hold undervalued TSX dividend stocks in a TFSA and benefit from outsized gains 2024 and beyond.

| More on:
Printing canadian dollar bills on a print machine

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Canadians can leverage the benefits offered by the TFSA (Tax-Free Savings Account) to build long-term wealth. Any returns earned in this registered account are exempt from Canada Revenue Agency taxes, making it an ideal account to hold blue-chip dividend stocks. Generally, the best dividend stocks can help you earn a steady stream of dividend income and benefit from capital gains over time.

Launched in 2009, the TFSA has gained popularity among Canadians due to its tax-sheltered status. The maximum cumulative TFSA contribution in 2024 has increased to $95,000, which can be used to hold quality dividend stocks such as Brookfield Infrastructure Partners (TSX:BIP.UN). Let’s see why.

Created with Highcharts 11.4.3Brookfield Infrastructure Partners PriceZoom1M3M6MYTD1Y5Y10YALL19 Jun 201418 Jun 2024Zoom ▾201520162017201820192020202120222023202420162016201820182020202020222022202420240www.fool.ca

Is Brookfield Infrastructure Partners stock a good buy right now?

Valued at $17 billion by market cap, Brookfield Infrastructure is among the largest owners and operators of critical global infrastructure networks that facilitate the movement and storage of energy, freight, passengers, water, and data. It is one of the few pure-play infrastructure vehicles that invests in real assets with stable cash flows and high margins.

Despite a sluggish macro environment, BIP reported funds from operations (FFO) of US$615 million in the first quarter (Q1), an increase of 11% year over year. Its organic FFO grew by 7% while US$2 billion of new investments also drove cash flows higher for the company, partially offset by its recycling program and higher interest costs.

Brookfield emphasized organic growth in Q1 was supported by inflation indexation, strong transportation and the commissioning of more than $1 billion of new capital from its capital backlog.

The transportation segment was a key driver of FFO growth, which stood at US$302 million, up 57% year over year. BIP’s fund flows increased due to its acquisition of Triton, tariff increases, and higher volumes. Moreover, its rail networks and tool roads realized average rate increases of 9% and 7%, respectively.

Brookfield Infrastructure emphasized that market conditions continue to improve in 2024, as showcased by higher merger and acquisition activity levels. It has already secured US$1.2 billion in proceeds from the sale of legacy assets in Q1 and aims to end the year with a capital-recycling target of US$2 billion.

In April, Brookfield disclosed plans to sell the fibre platform part of its French Telecom infrastructure business to a financial buyer. The transaction should net around US$188 million to BIP, indicating an internal rate of return of 17%.

BIP’s steady and predictable cash flows allow it to pay shareholders an annual dividend of US$1.62 per share, indicating a yield of almost 6%. These payouts have almost tripled in the last 13 years.

The Foolish takeaway

COMPANYRECENT PRICENUMBER OF SHARESDIVIDEND (Quarterly)CAPITAL GAINS
TOTAL PAYOUT (Dividends+ Capital Gains
Brookfield Infrastructure$37.162,556$0.5525$28,500$34,148

An investment of $95,000 in BIP stock would help you buy 2,556 shares of the company. Given its dividend payout, you will earn roughly $5,650 via dividends in the next 12 months. Further, the stock trades at a discount of 30% to consensus price target estimates. So, your capital gains could amount to $28,500, bringing your total returns to over $34,100.

This is just an example that showcases the potential benefits of investing in quality dividend stocks. Investors must identify other such dividend-paying giants and hold them in a TFSA, which results in portfolio diversification and lower risk.

Should you invest $1,000 in Brookfield Infrastructure Partners right now?

Before you buy stock in Brookfield Infrastructure Partners, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Brookfield Infrastructure Partners wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Canadian Red maple leaves seamless wallpaper pattern
Dividend Stocks

5 Canadian Dividend Stocks to Buy and Hold for the Next 20 Years

These Canadian stocks have paid dividends for decades, making them reliable investments to generate regular passive income.

Read more »

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »