The Tax-Free Savings Account (TFSA) isn’t income-based, so Canadians (and Canadian residents) need only a Social Insurance Number (SIN) and a valid email address to open an account. However, even without earned income, your TFSA can be your income source for years or maybe through the sunset years.
Some users might think earning $2,150 per year in passive income is daunting. In truth, achieving the objective will take only $7,000 (2024 annual contribution limit) annually for five years.
A low-volatility utility stock like Emera (TSX: EMA) and a consumer defensive stock like Rogers Sugar (TSX: RSI) can ensure uninterrupted quarterly dividends for dividend reinvesting.
With an average dividend yield of 6.2%, a $3,500 investment in each from year one to year five should transform into $2,154.25 annually, or $538.56 monthly. All your TFSA earnings and withdrawals are tax-free, too. Increase the income streams by maximizing the annual limit or contributing more afterward.
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Low-risk profile
Emera is the go-to stock of risk-averse investors. The $13.6 billion energy and services company is focused primarily on regulated electricity generation and transmission. Its stock belongs to the elite dividend aristocrat group owing to 17 consecutive years of dividend increases.
At $47.60 per share, EMA pays an attractive 6% dividend. According to management, Emera is well-positioned to provide long-term earnings, cash flow, and dividend growth to shareholders. In late June 2024, its CEO Scott Balfour said, “We are on a course to meaningfully reduce our payout ratio over the next five years.” As such, the dividend growth guidance through 2027 is 1% to 2%.
Balfour added that the reduced payout is part of Emera’s plan to invest more capital in high-growth opportunities. He notes the rising demand for electrification and rapidly growing market in Florida. Most investments will go to Tampa Electric and Peoples Gas in the state’s utilities.
The new three-year, $8.8 billion capital program should increase the $27.2 billion average rate base in 2023 by 7% to 8% through 2029. In Q1 2024, net income dropped 60.9% to $225 million compared to Q1 2023. High interest rates remain a headwind for utility companies, although the burden on Emera should lighten as the rate-cutting cycle continues.
Enduring, profitable business
Sugar is a low-growth but enduring business because it is a consumer staple. As an investment option, Rogers Sugar hardly experiences wild price swings and is a reliable passive income provider.
This $732.9 million company refines sugar and produces sugar products and specialty maple syrups. The business thus far this year has been steady. In the first six months of 2024, total revenues and net earnings rose 10.3% and 8% year-over-year to $589.6 million and $27.8 million, respectively.
Mike Walton, President and CEO of Rogers and Lantic, credits the strong demand for its products and improved operations for the profitable growth. He expects another year of strong financial results due to the capacity expansion, which should drive business growth and meet customers’ demand for years.
Meet your financial goals
Through the TFSA, Canadians can meet their short- and long-term financial goals. The annual contribution limit should be enough to achieve the desired passive income or build a small fortune over time.
