How to Earn $580 in Annual Passive Income With Just $10,000 and a TFSA

Power stock (TSX:POW) could be the top choice for investors looking to create massive annual passive income for life.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 19, 2024 8:45 pm EDT

Even a small investment in a Tax-Free Savings Account (TFSA) can grow into substantial passive income over time. This comes down to the power of compounding and tax-free growth. Even modest contributions, when invested wisely in a TFSA, can lead to significant income generation in the long term without the burden of taxes. So let’s look at one stock that could create massive passive income each and every year.

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills. — Source: Getty Images

Power Corp.

If you’re sitting on $10,000 and wondering how to put it to work in your TFSA for some passive income, Power Corporation of Canada (TSX: POW) might just be the perfect fit. This financial giant not only offers a solid dividend yield but also comes with a history of steady performance. This makes it a compelling choice for Canadian investors seeking to grow their wealth passively.

With a forward annual dividend yield of 5.9%, Power Corp is one of those stocks that can provide consistent income. This means your $10,000 investment could generate about $585 a year in dividends, which could be reinvested or used as supplemental income. The company’s payout ratio is a comfortable 49.5%. This indicates the dividends are well-supported by its earnings, and there’s room for growth.

Earnings show room for growth

Power Corp’s recent earnings also paint an encouraging picture. The company reported 44.6% year-over-year growth in quarterly earnings, with a diluted earnings per share (EPS) of $4.39. With a trailing Price/Earnings (P/E) ratio of 8.5, the stock is currently undervalued compared to many of its peers. This provides an opportunity to buy in at a reasonable price. The stock’s Price/Book (P/B) ratio is 1.9, suggesting it’s trading at a premium to its book value. Yet it still offers a good entry point given its stable earnings and strong dividend history.

The company boasts a strong balance sheet, with total cash of $175⁷ billion and a manageable debt level. This gives it the financial flexibility to weather economic downturns while continuing to pay dividends. The revenue growth of 11.5% year-over-year shows that Power Corp is not just sitting on its laurels but actively growing its business, which is key for long-term investors.

What you could create

Investing $10,000 in Power Corp within a TFSA means that all dividends and capital gains are tax-free, maximizing the potential return on your investment. With a history of steady dividends and a strong financial position, Power Corp is a low-risk way to generate passive income, making your money work harder for you without having to lift a finger. In fact, here’s what that $10,000 could get you.

COMPANY	RECENT PRICE	NUMBER OF SHARES	DIVIDEND	TOTAL PAYOUT	FREQUENCY	PORTFOLIO TOTAL
POW	$38.83	258	$2.25	$580.50	quarterly	$10,000

So, if you’re looking for a reliable, income-generating investment to include in your TFSA, Power Corporation of Canada offers a combination of stability, income, and growth potential that’s hard to beat. Especially with a strong return of $580.50 annually in dividends! With its strong performance and attractive valuation, this is one investment that could power your passive income strategy for years to come.