November excites Canadian savers, especially Tax-Savings Savings Account (TFSA) users. It’s the time of the year when the Canada Revenue Agency (CRA) announces the TFSA limit for the incoming year. The announced limit for 2025 is $7,000.
While the contribution limit is the same as in 2024, it’s a game-changer nevertheless. The available contribution room for anyone eligible to open a TFSA since 2009 has bumped to $102,000. TFSA investors know that the power of compounding works best in the registered investment account because of the tax-free money growth feature.
Any interest, dividends or capital gains from eligible investment instruments, including stocks, grow tax-free. Hence, your TFSA balance grows faster if you reinvest in the dividends. Generating yearly passive income is problem-free as long as users do not over-contribute.
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Potential earnings
Assuming your available contribution room is the maximum or $102,000, combining two low-volatile dividend stocks in a TFSA will produce $3,695.48 in yearly passive income. See the table below:
| Company | Recent Price | No. of Shares | Div / Share* | Total Payout* | Frequency** |
| National Bank | $133.67 | 381.5 | $4.40 | $1,678.76 | Quarterly |
| Fortis | $62.21 | 819.8 | $2.46 | $2,016.72 | Quarterly |
The example applies only to a $102,000 TFSA contribution room invested equally ($51,000 each) between National Bank of Canada (TSX:NA) and Fortis (NYSE:FTS). The bank stock pays a 3.29% dividend, while the utility stock yields 3.95%. Both companies pay quarterly dividends.
If you invest the max contribution limit of $7,000 ($3,500 each) in both dividend stocks, the annual passive income is 253.40. The earnings in either scenario are tax-free.
Stronger competitor
National Bank of Canada is the smallest among the country’s Big Five banks, with a market cap of $45.5 billion. As of this writing, current investors are up 36.17% year to date. On June 11, 2024, NA announced a proposal to acquire Canadian Western Bank.
The Competition Bureau gave the green light for the transaction to proceed. NA now awaits approval from the Minister of Finance under the Bank Act. The Department of Finance launched a public consultation on November 13, 2024, to gather feedback from various stakeholders and organizations.
NA believes the combination will create a stronger competitor and more choice for Canadians.
Kingly status
Fortis is a logical holding in a TFSA for its lofty market position. FTS is TSX’s second Dividend King. The $30.9 billion electric and gas utility company has increased dividends for 51 consecutive years. Its low-risk profile stems from regulated utility assets (99%). The operations are in Canada, the U.S., and the Caribbean.
Besides wearing a crown, Fortis announced a dividend growth guidance of 4-6% through 2029. Management expects the $26 billion five-year capital plan to raise its mid-year rate base by 6.5% (compound annual growth rate) and earnings per share (EPS) by 5.5% annually over five years.
Fortis’s utility services demand is unchanging and resilient through economic uncertainties. Both factors are built-in advantages.
More TFSA benefits
TFSA benefits don’t stop at tax exemptions on money growth and earnings. Withdrawals are tax-free, too, and there is no lifetime limit.
