Invest $7,000 in This Dividend Stock for $3,727.60 in Passive Income

Dividend stocks are the perfect fit for any TFSA contribution, but after strong earnings, this one should be top of the list.

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Maximizing your Tax-Free Savings Account (TFSA) contributions is one of the smartest financial moves Canadian investors can make, especially with the annual limit now set at $7,000 for 2024 and again in 2025. A TFSA provides unparalleled benefits, enabling your investments to grow entirely tax-free. Whether you’re earning dividends, interest, or capital gains, all profits within a TFSA remain untaxed, giving you more money to reinvest and take advantage of compounding. For long-term wealth-building or even supplementing retirement income, consistently meeting your TFSA limits is a cornerstone of a successful strategy.

Created with Highcharts 11.4.3National Bank Of Canada PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Bank on a bank

Dividend-paying stocks like National Bank of Canada (TSX:NA) are an excellent fit for a TFSA. Dividends provide regular income, and when held in a TFSA, those payouts are completely tax-free. This allows investors to reinvest the full amount of their dividends, thus turbocharging the power of compounding.

National Bank stock is a standout choice for dividend investors. The dividend stock has a solid history of growth and profitability, with strong financial results that underpin its dividend payments. As of writing, the bank reported impressive fourth-quarter results, with adjusted net income climbing to $928 million, up from $850 million in the same period last year. Much of this growth was driven by a 17% surge in adjusted net income from its wealth management business, highlighting its diversified revenue streams and resilience. This robust performance showcases the bank’s ability to thrive even in a complex economic environment.

Currently, National Bank offers a forward annual dividend of $4.40, providing a yield of approximately 3.13%. For investors seeking reliable passive income, this is a compelling yield, especially when the dividends are sheltered from taxes in a TFSA. Over time, this combination of steady income and tax-free growth can significantly enhance your portfolio’s value. Beyond dividends, the dividend stock’s price has also shown strong performance, contributing to attractive total returns that blend both income and capital appreciation.

Looking ahead

National Bank’s outlook remains promising. Recent interest rate cuts from the Bank of Canada have provided a boost to loan growth while reducing the risk of loan defaults. This supportive environment, coupled with the bank’s strength in wealth management and financial markets, positions it well for continued success. With its diversified operations, National Bank is well-equipped to navigate economic shifts while maintaining profitability.

So, when you invest in a dividend stock like National Bank within your TFSA, you’re setting yourself up for both immediate income and long-term growth. The tax-free nature of the TFSA amplifies the benefits, enabling your portfolio to grow more effectively. By reinvesting your dividends, you can harness the full power of compounding, turning small contributions into a substantial nest egg over time.

For Canadian investors, meeting the TFSA limit each year is more than just a smart financial habit. It’s an opportunity to maximize your wealth-building potential. Combining this with investments in top-performing dividend stocks like National Bank of Canada creates a powerful strategy for generating tax-free income and capital appreciation. Over the years, this approach can help you achieve your financial goals, whether you’re saving for retirement, a major purchase, or simply building financial security.

Bottom line

In the end, the TFSA isn’t just a savings account. It’s a tool for financial freedom. Pairing it with high-quality dividend stocks like National Bank ensures you’re making the most of this powerful investment vehicle. In fact, that $7,000 could gain you a lot through returns and dividends if shares rise another 49%, as they have in the last year!

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYINVESTMENT
NA – now$135.5052$4.40$228.80quarterly$7,000
NA – 49%$201.9052$4.40$228.80quarterly$10,498.80

Now, investors can gain $228.80 in dividends and $3,498.80 in returns! That’s a total of $3,727.60 in passive income! With consistent contributions and a focus on growth, you can build a portfolio that grows tax-free and supports your financial dreams for decades to come.

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