TFSA Passive Income: How to Earn $2,500 of Tax-Free Income Per Year

Are you looking for passive income from your TFSA (Tax-Free Savings Account)? Here is how you could create a portfolio that could yield as much as $2,500 of tax-free income per year.

Firstly, divide your annual desired income by your anticipated yield. A market index like iShares Core Capped Composite Index ETF yields 2.85% today. You would need $87,719 invested in the Index to earn $2,500.

Get more income by owning a stock portfolio in your TFSA

You are likely to do much better (with less cash invested) by building your own portfolio. Say you compiled a portfolio of dividend stocks with an average yield of 4%. You would only need $62,500 invested to earn $2,500 a year.

Are you wondering how you could do that? Here’s an equal-weighted three-stock portfolio that could help you earn that target. At the Motley Fool, we recommend a more diversified portfolio, but this just demonstrates the amount of income you could earn inside a TFSA today.

A solid infrastructure stock

The first dividend stock I’d consider adding to a TFSA is Pembina Pipeline (TSX: PPL). Pembina is a leading energy infrastructure provider in Western Canada.

Canada has limited transportation options for energy products to get to market. Pembina helps solve this with its portfolio of collection and egress pipelines, processing facilities, storage, and export terminals.

Over 80% of its earnings come from contracted sources. This contracted income more than covers its 4.6% dividend. With its strong excess cash generation, Pembina has made some opportunistic acquisitions. Likewise, it just announced a major LNG project on the west coast.

If you put a third ($20,833) of your $62,500 TFSA cash into Pembina today, you would earn $243.57 quarterly or $974.28 annualized. It just resumed a dividend-growth posture, so there is more income upside here.

A top-performing bank

Another great stock for passive income in your TFSA is National Bank of Canada (TSX: NA). With a 3.3% dividend yield, it is not the highest-yielding bank in Canada. However, it has one of the best track records. Its stock is up almost 100% in the past five years.

National Bank has been very prudent about only operating in areas of core competency. It has a leading franchise in Quebec, and it is about to expand into Western Canada with the acquisition of Canadian Western Bank.

National has an exceptional dividend growth record. Its dividend has grown by an 8.9% compounded annual growth rate. If you put $20,833 to work in National Bank stock, you would earn $173.8 quarterly, or $695.20 annually.

A top TFSA real estate stock

Granite Real Estate Investment Trust (TSX: GRT.UN) is another good addition to a TFSA portfolio. It yields 4.1%. Granite owns and operates 143 manufacturing, logistics, and warehousing properties across Canada, America, and Europe.

It has a slate of high-quality tenants on long-term leases. Its leases have built-in rent risers that support organic growth. It also has several development projects that are expected to contribute to rent in the next few quarters.

Granite has one of the best balance sheets in the sector. Its balance sheet strength has supported 13 years of consecutive distribution increases.

If you bought $20,833 of Granite stock in your TFSA, it would earn $74.80 per month, or $897.60 annually.

The Foolish takeaway

Combine this TFSA portfolio, and you would earn $2,567.08 of tax-free passive income per year. All these stocks are growing their dividends annually so that annual income could be substantially larger in the years ahead.