The story of the golden goose applies to your Tax-Free Savings Account (TFSA) investments. If you nurture your investments, it can keep giving you passive income, but if you withdraw all your amount, you lose your tax-free income.
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How the TFSA can bring financial discipline and passive income
If you tend to spend everything, consider the dividend route. That way, you can put away your surplus amount in dividend stocks and get paid annual passive income for decades for your investments.
The 2024 TFSA limit is $7,000. If you don’t have that much money to invest, it will carry forward to next year. If you are late with your investments, you can catch up by investing more in a few stocks at their decade-low.
These stocks can give you passive income for decades
There are many ways to earn a passive income. You can lend it to someone and earn interest. You can rent your car, house, boat, lawnmower, or camera. In each of these cases, the initial investment is high, and there is a risk of the asset declining in value, plus the maintenance cost and tax on the rental income.
You can skip all this and earn that passive income by investing in these stocks through a TFSA.
SmartCentres REIT
What would be wiser, renting a house or a shop? And if it’s a grocery store like Walmart, you can be assured of stable rent. SmartCentres REIT (TSX:SRU.UN) gives you the stability to profit from such rent. Moreover, it has been intensifying the properties near its stores by building residential and office space, which can help increase the store rent. It earns money by selling apartments and offices, but the core business remains that of leasing.
SmartCentres REIT has been doing this for decades, so they have professionals to handle the tax and rental agreement. The REIT offers an annual yield of 7.4%. If you rented your house, you would only get 2–3% of the house value in rent. Here you don’t need hundreds of thousands of dollars to start earning rent. A $10,000 investment now will give you $737 in annual passive income for decades. And since the payouts from a TFSA are tax-free, the entire amount is for you to spend.
goeasy stock
While SmartCentres REIT can give you a fixed amount, goeasy (TSX:GSY) can grow your passive income significantly. The sub-prime lender goeasy gives small, short-term loans to people for home renovation, cars, shopping, or personal reasons at a higher rate. Its $4.4 billion loan portfolio earns a yield of 33–35%.
The lender also faces payment delays and delinquencies, but it keeps the credit risk below 10%. There is a separate provision for such loans that are not recoverable. After all the marketing, loan processing, and paperwork, goeasy earns an operating margin of around 39%. It passes on a portion of its interest income to its shareholders.
goeasy has been growing its loan business sustainably by introducing new products, expanding in different markets, and cross-selling existing customers. As the loan portfolio grows the interest income increases, and it shares these earnings through higher dividends. The lender has grown its dividend at an average annual rate of 31% in the last 10 years from $0.40 in 2015 to $4.68 in 2024.
The stock is trading above $174 per share. A $4.68 annual dividend might look like a drop in the ocean. But if you hold the stock for a decade, this drop can fill a lake.
A $10,000 investment in goeasy today can earn you $266 in annual dividends. If the lender grows its dividend by 20% annually, your passive income could grow to around $1,650 in 10 years. The value of your $10,000 investment will also increase as the company grows.
The passive income takeaway
You can either earn $737 in passive income for decades, start with $266 and grow it to $1,650 in a decade, or invest in both and get the best of both worlds.
