How to Use Your TFSA to Earn $955/Year in Tax-Free Income

Collecting dividends in a TFSA (Tax-Free Savings Account) is an incredibly easy way to make passive income that doesn’t get taxed. Just buy some dividend-paying stocks in that type of account, and the income you make from the dividends stays completely tax-free! It’s perfect for long-term growth, as you can reinvest your dividends and watch your wealth snowball over time. Just be mindful of the TFSA contribution limits ($7,000 for 2024, though you may be able to invest more if you didn’t max out the limits in years past).

Getting started

When using a TFSA to create passive income through dividends, you should prioritize buying stable, dividend-paying stocks or exchange-traded funds (ETF) that offer consistent returns. Look for companies with a strong track record of paying dividends — even paying out during market downturns, as these businesses are often more reliable for building steady income. Companies whose dividends are getting bigger are also attractive choices because stocks that consistently increase payouts can boost your income without your lifting a finger. Don’t forget to diversify your holdings across sectors. Consider investing in utilities, financials, and real estate to reduce your risk if one industry faces challenges.

You’ll also want to consider compounding. Reinvesting your dividends can supercharge your growth over time, leading to exponential gains as your TFSA matures. Making passive income through dividends is a long game, but stay patient!

Consider BAM stock

Brookfield Asset Management (TSX:BAM) has been in the investing spotlight lately, and it’s no surprise why. As one of the largest alternative asset managers in the world, BAM specializes in real estate, renewable energy, infrastructure, and private equity. What’s been getting investors excited is the company’s strong growth prospects, especially in renewable energy and infrastructure, which are both booming sectors. With global demand for clean energy rising, BAM’s investments in these areas are expected to generate significant returns. This makes the stock attractive for investors who are looking for growth potential alongside reliable dividend income​.

Brookfield’s consistent payouts make it a go-to choice for passive income investors. The company has a well-deserved reputation for returning value to shareholders, currently paying a 3.2% dividend yield that’s appealing even in today’s market. Its diversified asset base also helps reduce risk, giving it the ability to thrive across different economic cycles.

Strong performance

BAM has delivered an impressive compound annual growth rate (CAGR) of approximately 14% over the last decade, showcasing its ability to generate solid returns for long-term investors. This growth has been fuelled by its diversified investment strategy across sectors like real estate, renewable energy, infrastructure, and private equity. Its consistent ability to find profitable opportunities globally, combined with prudent management, has kept BAM on a strong growth trajectory​.

In terms of recent earnings, BAM posted a net income of $443 million in its latest quarter, with earnings per share (EPS) of $1.48, up 13.8% year over year​. For passive income investors, the company’s dividend is a draw, especially given BAM’s focus on long-term, stable cash flows from its global investments. The company’s ability to consistently grow and pay dividends, coupled with its exposure to high-demand sectors like renewable energy and infrastructure, makes it a valuable long-term hold for those looking to build wealth within a TFSA​.

If you were to invest $30,000 in BAM stock today, you could create almost $1,000 a year in tax-free income without doing any work. ($30,000 / $64.35 = 466 shares)

That’d be a payout of $955.30 in dividends over one year.