Canadian investors can consider using the benefits associated with the Tax-Free Savings Account (TFSA) to create a passive income portfolio in 2024. As any returns generated in the registered account are exempt from Canada Revenue Agency taxes, you can hold quality dividend stocks in a TFSA and build long-term wealth.
Typically, the best dividend stocks offer investors a tasty and growing yield in addition to consistent capital gains. Here are three TSX dividend stocks you can buy with $25,000 and build a tax-free passive income portfolio right now.
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Enbridge stock
Among the most popular dividend stocks in Canada, Enbridge (TSX: ENB) currently offers you a forward dividend yield of 6.5%. Enbridge has raised its dividends every year for the last 29 years, which is exceptional for a company that is part of the cyclical oil and gas sector.
Enbridge generates the majority of its cash flows from inflation-linked long-term contracts, shielding it from fluctuations in oil prices. Moreover, its vast network of pipelines provides Enbridge with a wide competitive moat.
Despite its massive size, Enbridge’s growth story is far from over, as the company ended Q2 2024 with a secured capital program of $24 billion across its four business segments. It also closed the acquisitions of three gas utilities from Dominion Energy, a deal that should boost earnings growth and result in higher dividend payouts going forward.
While it will be difficult for Enbridge to replicate its historical dividend growth, the company’s strong balance sheet and sustainable payout ratio should help it raise dividends by 5% annually in the future.
Exchange Income stock
A Canadian company offering a monthly dividend, Exchange Income (TSX: EIF) has returned over 500% to shareholders in the past decade after adjusting for dividend reinvestments. Despite its outsized gains, Exchange Income offers a yield of almost 5%.
Exchange Income is engaged in aerospace and aviation services and equipment, and manufacturing businesses worldwide. In Q2 2024, it reported revenue of $661 million, an increase of 5% year over year, while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose by $10 million to $157 million.
Its free cash flow was $101 million, and if we account for maintenance capital expenditures, it stands lower at $52 million. Its payout ratio of 61% allowed EIF to increase dividends three times in the last two years.
Priced at 18 times forward earnings, EIF stock trades at a 20% discount to consensus price target estimates.
Brookfield Asset Management stock
The final TSX stock on my list is Brookfield Asset Management (TSX: BAM), which offers you a dividend yield of 3.2%. With close to US$1 trillion in assets under management, Brookfield is among the world’s largest alternative asset managers. It ended Q2 with US$515 billion in fee-bearing capital and US$2.2 billion in fee-related earnings.
Over the years, Brookfield has successfully expanded its ecosystem to identify investments with secular tailwinds and strong growth potential. For instance, in the last three decades, the company has generated more than US$225 billion in cumulative profits due to its diversified investments and strong cash flows.
Analysts tracking BAM stock expect adjusted earnings to expand by 14.5% annually in the next five years. Priced at 28 times forward earnings, BAM trades at a reasonable multiple in October 2024.
