How to Use a TFSA to Create $4,846.08 in Passive Income for Life!

If there is one stock that could create massive amounts of dividend and returns for your passive-income TFSA, it’s this one.

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For Canadians looking to grow a significant portfolio, the Tax-Free Savings Account (TFSA) is one of the best tools available. With a TFSA, your investments can grow tax-free, meaning gains, dividends, and interest aren’t taxed when withdrawn. In 2024, the annual contribution limit is $7,000. With cumulative room from previous years, many Canadians can contribute up to $95,000 if they haven’t maxed out contributions yet. This powerful compounding effect, combined with tax-free growth, makes the TFSA a great choice for long-term wealth building. So, let’s get started!

Created with Highcharts 11.4.3Goeasy PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Where to invest

goeasy (TSX:GSY) is a strong option for TSX investors. The company, which specializes in providing non-prime consumers with access to credit, has experienced impressive earnings growth. For the second quarter of 2024, goeasy reported revenue growth of 15.4% year over year, demonstrating its ability to navigate economic challenges. Jason Mullins, president and chief executive officer of goeasy, remarked, “We continue to benefit from a large addressable market, strong execution, and the expansion of our product offering, which together drove solid performance this quarter.” This combination of steady growth and market opportunity makes goeasy a compelling investment.

goeasy’s financial performance has been nothing short of remarkable. The company boasts a trailing price-to-earnings (P/E) ratio of 11.39 and a forward P/E of 8.61, thereby indicating that the stock is currently trading at a reasonable valuation given its growth prospects. Its 17.7% quarterly earnings growth, paired with a return on equity of 25.28%, shows that management has effectively used capital to generate strong returns. The company’s market capitalization sits at $2.94 billion as well. With a dividend yield of 2.63% at writing, goeasy provides a solid income stream for investors alongside growth.

Yet still valuable

From a value perspective, goeasy remains an attractive option. The stock is trading at a price-to-book ratio of 2.57, suggesting that it is reasonably priced relative to its net assets. Its enterprise value is $6.11 billion, with an enterprise value/revenue ratio of 4.38, showing a fair valuation when considering the company’s revenue generation. Furthermore, the company’s five-year average dividend yield of 2.38% has been steadily increasing, rewarding shareholders over time.

The company’s ability to generate strong profits while maintaining a manageable level of risk makes it a valuable long-term hold. With a profit margin of 33.40% and an operating margin of 43.11%, goeasy has demonstrated that it can operate efficiently even in challenging market conditions. While goeasy has a high debt-to-equity ratio of 289.31%, it also maintains a healthy cash reserve of $225.88 million. This helps balance its financial position. The stock has shown resilience, with a 52-week increase of 44.21%. For investors seeking both growth and income, goeasy’s combination of solid financials, steady dividends, and potential for future growth makes it a strong choice.

Bottom line

So, how can we earn that income? Let’s say you put $20,000 towards goeasy stock. You then continue to see it rise by its compound annual growth rate of 22% in the last decade. Add in the dividend, and here’s what one year could look like!

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTAL
GSY – now$178112$4.68$524.16quarterly$20,000
GSY – 22%$217.16112$4.68$524.16quarterly$24,321.92

Now, you’ve added $4,321.92 in returns and $524.16 in dividends, totalling $4,846.08! In summary, goeasy stock presents a compelling opportunity for Canadian investors looking to grow their wealth within a TFSA. With strong earnings momentum, an attractive dividend yield, and a solid track record of profitability, goeasy has proven to be both a growth and income stock. It’s well positioned for long-term value, making it a great addition to portfolios aiming for a mix of stability and growth.

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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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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