If you want to earn passive income tax-free, the TFSA (Tax-Free Savings Account) is a great spot to place your dividend stock investments. All the income earned in the account is safe from tax. Likewise, when you withdraw your cash, you don’t have to pay any tax on the gains either.
It’s one of the most flexible tax-advantaged registered accounts in Canada. If you are looking for some income stocks to buy and hold for the long run inside a TFSA, these four stocks look attractive.
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A cyclical with an impressive dividend growth record
Canadian Natural Resources (TSX: CNQ) has provided a spectacular mix of dividends and capital gains. It has grown its dividend per share by a 21% compounded annual growth rate for 24 consecutive years! Since 2004, its dividend per share is up an astounding 3,400%!
CNQ operates in the cyclical energy industry. It is the largest energy producer in Canada. While it is subject to energy prices, the energy firm has established an incredibly resilient production platform. It has decades of oil and gas reserves and a low cost of production.
Having hit its long-term debt target, CNQ now plans to return all its excess cash to shareholders. That just means more dividend increases, special dividends, and substantial share buybacks are ahead. This passive income stock yields 4.2%.
A safe-and-steady passive income stream
Pembina Pipeline (TSX: PPL) is a solid anchor stock to hold for passive income over the long term. It operates a network of pipelines, midstream, processing, storage, and export facilities across Western Canada.
In recent years, the company has utilized excess cash to expand its network, improve its balance sheet, and return to a dividend-growth posture. Last quarter, the company delivered record earnings and cash flow.
PPL’s dividend is supported by its contracted pipeline business, so it is very resilient. Today, Pembina yields 5.1%. With a sector-leading balance sheet, it has the capacity to keep growing its infrastructure network and delivering increased dividends to shareholders.
A blue-chip stock for rising passive income
Another passive income stock to hold for years is Canadian National Railway (TSX: CNR). With a plus 100-year operating history, this business has been resilient through the decades.
Over the past 20 years, Canadian National has delivered 10% compounded annual earnings per share growth. CNR has grown its dividend per share by a 14.7% compounded annual rate.
There is no other way to cost effectively transport bulk goods and freight across North America. Canadian rail companies have strong competitive moats.
As a result, CNR should enjoy strong demand and pricing power in the decades ahead. Its stock is down 10% in the past six months. With a yield of 2.2%, it’s an attractive entry point.
A fast-growing financial stock
Propel Holdings (TSX: PRL) is a passive income stock to buy if you don’t mind a bit of risk, but want substantial upside. Propel provides specialized small loans to the non-prime market in Canada and the United States.
Strong consumer loan demand has helped “propel” revenues and earnings per share by respective compounded annual growth rates of 60% and 40%, respectively, over the past three years. Its stock is up 187% in that time. Its dividend per share is up 38% since May 2023.
Despite its impressive growth, PRL stock only trades for 13 times earnings. This passive income stock has a 1.9% dividend yield, but that is likely to increase as it keeps growing its dividend.
