How to Use the TFSA to Earn $8,613 in Passive Income Annually

Here’s why you can hold dividend-growth stocks in a Tax-Free Savings Account and earn a steady passive-income stream.

| More on:
TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins

Source: Getty Images

Introduced more than 15 years ago, the Tax-Free Savings Account (TFSA) is a popular registered account in Canada. It is a tax-sheltered account, meaning any TFSA returns are exempt from Canada Revenue Agency taxes. Moreover, you can buy and hold various qualified investments in the TFSA, including stocks, bonds, mutual funds, and exchange-traded funds.

The maximum cumulative TFSA contribution room increased to $95,000 in 2024. Now, most Canadian investors should hold a basket of stock and bond ETFs in the TFSA to benefit from diversification and lower portfolio risk. However, Canadian investors with a higher risk appetite may allocate around $15,000 toward individual stocks to generate outsized gains over time.

Let’s see how you can use the TFSA to earn more than $8,600 in annual passive income.

Invest in high-dividend stocks such as Alvopetro Energy

Alvopetro Energy (TSXV:ALV) is a Brazil-based upstream and midstream operator with a market cap of $190 million. It is the first Brazilian integrated onshore natural gas producer. The energy company aims to unlock onshore natural gas potential in the Brazilian state of Bahia by building natural gas projects and expanding its strategic midstream infrastructure.

Created with Highcharts 11.4.3Alvopetro Energy PriceZoom1M3M6MYTD1Y5Y10YALL25 Sep 201924 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '2420202020202120212022202220232023202420240www.fool.ca

Alvopetro’s operating revenue has increased from US$10.6 million in 2020 to US$48.7 million in the last 12 months. Due to its strong revenue growth, the oil and gas stock has returned close to 250% to shareholders in the last five years after adjusting for dividend reinvestments.

In the second quarter (Q2) of 2024, Alvopetro’s operating netback stood at US$64.30 barrels of oil equivalent. The operating netback metric measures the profitability of producing commodities such as crude oil and natural gas and provides insight into a company’s operational efficiency.

In the June quarter, its funds flow from operations stood at US$7.9 million or US$0.21 per share. Its funds from operations (FFO) fell by US$3.1 million due to lower sales volumes and realized prices. However, the company announced a 49% increase in production in Q3.

Alvopetro has a disciplined capital allocation model where it reinvests around 50% of its FFO in organic growth while the remaining is distributed to shareholders via dividends. The company has already returned close to US$44 million to shareholders in dividends and will soon begin a share-buyback program.

Alvopetro spent US$3.4 million in capital expenditures in the June quarter, while its dividend payouts amounted to US$3.3 million.

Is Alvopetro stock a good buy right now?

Alvopetro pays shareholders a quarterly dividend of $0.12 per share, translating to a dividend yield of over 9%. In addition to its tasty dividend, Alvopetro is forecast to increase its adjusted earnings per share from $1.05 in 2023 to $1.35 in 2025. So, priced at four times forward earnings, the energy stock is cheap and trades at a discount of 48%, given consensus price target estimates.

COMPANYRECENT PRICENUMBER OF SHARESTOTAL DIVIDENDCAPITAL GAINSTOTAL POTENTIAL PAYOUT
Alvopetro$5.202,884$1,413$7,200$8,613

An investment of $15,000 in Alvopetro stock would help you earn close to $1,410 in dividends over the next 12 months. Moreover, if the stock trades near its target price, your cumulative returns (including capital gains) will be roughly $8,610.

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 has positions in and recommends Alvopetro Energy. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

I’d Put $15,000 in These 3 Dividend-Growth Champions for Increasing Income Potential

Want to offset some volatility? Here are three defensive dividend-growth champions that can generate a juicy yield right now.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $7,000

Discover how the Tax-Free Savings Account can be your golden goose for generating cash without losing your investment.

Read more »

monthly desk calendar
Dividend Stocks

How I’d Invest $10,000 in Canadian Value Stocks for Monthly Dividend Income

A $10,000-diversified portfolio of value stocks focusing on dividend safety, yield, growth, and payment schedules can provide a reliable source…

Read more »

a person watches a downward arrow crash through the floor
Dividend Stocks

Is This Correction Your Chance? Top 4 Canadian Dividend Stocks on Sale

Stocks may be down, but now is your chance to get some of these top dividend stocks on sale.

Read more »

Confused person shrugging
Dividend Stocks

Where to Invest $2,500 in the TSX Today

These TSX stocks offer attractive dividends and a shot at decent upside on a rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,956.66 in Annual Passive Income

Dividends stocks can make a huge difference, even if shares don't move an inch. And these might be the best.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Got $5,000? 5 Income Stocks to Buy and Hold Forever

These income stocks have a solid dividend-payout history that can help you earn stress-free passive income.

Read more »

grow money, wealth build
Dividend Stocks

Why I’d Invest $10,000 in This Undervalued Dividend-Growth Stock for Decades of Income

This undervalued dividend stock offers a high yield of over 8% and can help you earn more than $200 in…

Read more »