The Tax-Free Savings Account (TFSA) is like a financial superhero for creating passive income! With its ability to shelter your investment earnings from taxes, any growth or income generated within your TFSA stays entirely in your pocket. This means you can reinvest your earnings without the pesky tax deductions that come with other accounts. Plus, the flexibility of the TFSA allows you to withdraw funds anytime without penalty, thereby making it a great option for accessing your hard-earned cash when you need it. How can you get started? Let’s get into it.
What exactly passive income is (and isn’t)
Passive income through investing is like having your cake and eating it, too! When you invest in assets such as stocks, real estate, or exchange-traded funds (ETF), Canadians can enjoy two main sources of passive income: returns and dividends. Returns come from the appreciation in the value of your investments, meaning when you sell them for more than you paid, you pocket the difference. However, dividends are those lovely cash payments you receive from companies as a reward for owning their stock.
When looking for investments that provide both returns and dividends, it’s essential to consider a few key factors. Start by evaluating companies or funds with a solid track record of dividend payments, preferably those that consistently increase their dividends over time. This can be a great indicator of a company’s financial health and commitment to rewarding shareholders. Additionally, consider the potential for capital appreciation by analyzing the company’s growth prospects and overall market trends. A well-rounded investment strategy that incorporates both dividend-paying stocks and growth-oriented assets can help you build a robust passive-income stream that stands the test of time!
Consider a dividend ETF
Hamilton Enhanced Multi-Sector Covered Call ETF (TSX:HDIV) is a fantastic option for a TFSA passive-income portfolio, and here’s why. With a yield of 10.92% at writing, this fund provides a robust income stream that can significantly boost your earnings without the tax burden that typically accompanies dividends and interest. The impressive year-to-date total return of 17.75% reflects not only the attractive dividend payments but also the potential for capital appreciation as the underlying assets perform well. With a price-to-earnings (P/E) ratio of 12.47, HDIV is also reasonably valued. HDIV is an appealing choice for those looking to grow their investment over time while enjoying regular payouts.
Another reason HDIV shines in a TFSA setup is its strong net assets of $473.64 million, showcasing its stability and investor confidence. The absence of an expense ratio means that nearly all your investment goes directly toward generating returns! Plus, HDIV’s consistent performance within a 52-week range of $14.00 to $17.42 demonstrates resilience and reliability in the market. This combination of high yield, strong performance, and low costs makes HDIV a smart pick for anyone eager to build a steady passive-income stream — all while enjoying the tax benefits of a TFSA.
Bottom line
So, how do you create that passive income? Let’s say you have $25,000 to invest and put it in HDIV ETF. Here is what that might look like from dividends alone.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| HDIV | $17.30 | 1,445 | $2.052 | $2,965.14 | monthly | $25,000 |
Creating passive income through a TFSA with HDIV is a savvy move for any investor looking to grow their wealth without the tax hassle! With a solid yield of 10.92% and a year-to-date total return of 17.75%, HDIV not only offers a generous dividend but also the potential for capital appreciation, making it an attractive choice for your tax-free savings. Plus, the absence of management fees means more of your money is working for you! By investing in HDIV within your TFSA, you’re setting yourself up for a reliable income stream while enjoying the benefits of tax-free growth, making it an ideal strategy for building long-term wealth and financial freedom.
