How to Use Your TFSA to Earn $2,965.14 Per Year in Passive Income

Creating long-term, high passive income doesn’t have to be risky or unsafe. You can make it right away with this stable ETF.

| More on:
Various Canadian dollars in gray pants pocket

Image source: Getty Images

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.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTAL
HDIV$17.301,445$2.052$2,965.14monthly$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.

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.

More on Dividend Stocks

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

By investing in fundamentally strong TSX dividend stocks, you could expect to earn largely predictable income every month.

Read more »

Red siren flashing
Dividend Stocks

TFSA Millionaire Alert: 4 Must-Buy Canadian Stocks

Four Canadian stocks are must-own stocks for TFSA investors looking to be future millionaires.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Use Your TFSA to Earn $4,600 Per Year in Tax-Free Income

Are you ready for major income? Even in just one year, you could earn $4,600 in your TFSA. No, really!

Read more »

Question marks in a pile
Dividend Stocks

Is Enbridge Stock the Best High-Yield Dividend for You?

Enbridge's dividend yield of more than 6.5% is backed by a stable and predictable revenue profile, making it a solid…

Read more »

Two senior friends playing beat tennis on sand tennis court
Dividend Stocks

Retirees: 2 Income Stars That Yield More Than 6%

Consider TC Energy (TSX:TRP) and another passive-income pick to put your retiree income stream into a powerplay!

Read more »

Family relationship with bond and care
Dividend Stocks

CPP Special Benefits: 2 Scenarios for Early or Increased Benefits

Not everybody can get CPP special benefits, but anybody can get dividends from ETFs like iShares S&P/TSX 60 Index Fund…

Read more »

ETF chart stocks
Dividend Stocks

2 Canadian ETFs to Buy and Hold Forever in Any TFSA

ETFs are getting the best of everything with the click of a button. Add in a TFSA and investors have…

Read more »

stock research, analyze data
Dividend Stocks

The Average Canadian Stock Investor Owns This 1 Stock: Do You?

It won’t be surprising to know that the average Canadian stock investor owns shares of an industry giant.

Read more »