Creating a tax-free annual income can be effectively achieved through dividend stocks, particularly with a robust player that’s been around the block a couple of hundred years. One like Bank of Montreal (TSX:BMO). When these dividends are held in a Tax-Free Savings Account (TFSA), Canadians can enjoy entirely tax-free growth and income. This makes TFSA investing in dividend stocks an ideal way to create a steady income stream without tax implications. So let’s look at how much investors could bring in.
BMO stock
BMO stock, as one of Canada’s most established banks, provides stability and reliability in the dividend space. As of writing, BMO stock’s dividend yield sits around 5.1% – especially appealing given that fixed-income investments often offer lower returns. BMO’s consistent dividend growth is also noteworthy; the bank has a long history of paying and increasing dividends, demonstrating its commitment to rewarding shareholders. This historical commitment is backed by solid financial health, thus making BMO a strong candidate for those looking to generate consistent income.
In its latest earnings report for the third quarter of 2024, BMO stock reported a net income of $1,865 million, or $2.48 per share on a reported basis, and $1,981 million, or $2.64 per share on an adjusted basis. While these results were slightly below market expectations, BMO stock’s resilience and strategic positioning continue to be strengths. BMO’s earnings reflect its ability to navigate economic fluctuations while maintaining profitability and supporting its dividend policy, essential for income-focused investors.
The dividend
BMO stock’s current quarterly dividend, set at $1.55 per share, reinforces its shareholder-friendly approach. Despite global economic uncertainties, BMO stock maintains its dividend rate, reflecting management’s confidence in the bank’s financial health.
And more is likely to come. A key factor in BMO’s future growth strategy is its acquisition of Bank of the West, which closed in early 2023. This acquisition expands BMO’s footprint in the U.S. market, adding approximately 1.8 million customers and around 500 new branches and offices to its network. The U.S. banking market offers growth opportunities that BMO can tap into over time. And this could further enhance its earnings and dividend-paying ability.
Investing in dividend stocks like BMO within a TFSA also adds a layer of flexibility, as investors can withdraw funds without incurring taxes or penalties. This feature is especially valuable for retirees or those seeking supplemental income. For those planning to live off investment income, holding a core of reliable dividend stocks like BMO is an effective way to sustain cash flow without depleting principal.
Bottom line
So how much could you make? Let’s say you take your $7,000 contribution room from this year and put it towards BMO stock. Here is what that could create through returns and dividends in the next year if we see another 19% increase.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | INVESTMENT |
| BMO – now | $131.15 | 53 | $6.20 | $328.60 | quarterly | $7,000 |
| BMO – 19% | $156 | 53 | $6.20 | $328.60 | quarterly | $8,268 |
That’s now $328.60 in dividends and $1,268 in returns, totalling $1,596.60! Altogether, BMO’s consistent dividend growth, strong financial position, and tax-efficient benefits make it an attractive choice for Canadian investors focused on generating tax-free income. The bank’s expansion into the U.S. market further supports its growth potential, adding a buffer against regional risks. For Canadians looking to maximize after-tax income, dividend-paying stocks in a TFSA, led by stalwarts like BMO, offer a stable, tax-efficient path to building wealth.
