How to Use Your TFSA to Average $6,460 Per Year in Tax-Free Passive Income

The Tax-Free Savings Account, or TFSA, is a popular registered account in Canada. In 2025, the TFSA contribution room grew by $7,000, bringing the cumulative contribution room to $102,000.

As the TFSA is tax-sheltered, Canadian investors should consider buying and holding quality dividend growth stocks in this account to benefit from a steady stream of passive income and consistent capital gains.

So, let’s see how you can use the TFSA to average more than $6,400 per year in tax-free passive income.

Hold TSX dividend stocks in a TFSA

Enbridge (TSX:ENB) is a Canada-based energy infrastructure company with a widening base of cash-generating assets. In the last 30 years, the TSX stock has returned 1,550% to shareholders. However, after adjusting for dividend reinvestments, cumulative returns are much closer to 6,150%.

So, an investment of $1,000 in ENB stock in January 1995 would be worth close to $62,500 today, crushing the broader market returns by a significant margin.

Despite a challenging macro environment in 2024, Enbridge continues to benefit from its recent utility acquisitions and strong demand across its pipeline networks.

In the fourth quarter (Q4) of 2024, Enbridge reported an EBITDA (earnings before interest, tax, depreciation, and amortization) of $5.1 billion, an increase of more than $1 billion year over year. Its distributable cash flow per share also rose 10% to $1.41 in the December quarter.

The Canadian pipeline operator saw significant growth in its gas distribution business, which reflected the first full quarter of earnings from three U.S. utilities acquired in 2024. Enbridge has approximately doubled the size of its utility franchise, now serving over seven million customers with more than nine billion cubic feet per day of gas delivery capacity.

“We delivered record EBITDA and DCF per share in 2024 with new assets and continued customer demand contributing to a 13% increase in EBITDA over 2023,” Chief Executive Officer Greg Ebel said during the earnings call.

Enbridge’s Mainline pipeline system, crucial for moving Canadian oil to U.S. markets, has been apportioned since November, indicating strong demand. The system averaged a throughput of 3.1 million barrels per day throughout the year.

A focus on dividend growth

Enbridge reaffirmed its 2025 guidance, expecting adjusted EBITDA between $19.4 billion and $20 billion and DCF per share of $5.50 to $5.90. At the midpoint estimate, Enbridge has a payout ratio of 66%, which allows it to raise dividends, lower its balance sheet, and target accretive acquisitions.

Enbridge increased its dividend for the 30th consecutive year in December, maintaining its status as one of the few Dividend Aristocrats in the energy infrastructure sector. Moreover, Enbridge stock delivered a 37% total shareholder return to investors in 2024.

“Our commitment to discipline gives us confidence that we can extend our track record of meeting financial guidance, steadily growing our dividend and continuing to create value for our investors,” Ebel added.

Enbridge has a capital project backlog of $26 billion, placing $5 billion of assets into service in 2024 and adding $8 billion of newly sanctioned projects through 2029. This includes approximately $3 billion of annual utility investment.

Enbridge shares are closely watched by investors as the company continues integrating its newly acquired utilities and advancing its renewable energy projects, including the recently completed 577-megawatt Fox Squirrel facility in Ohio, which is generating power under long-term contracts with Amazon.

The Foolish takeaway

Investing $102,000 in the TFSA will help you buy 1,716 shares of Enbridge. You can earn close to $6,470 in annual dividends, given its payout. However, investing such a considerable sum in a single stock is not advisable. Instead, you should identify other quality dividend growth stocks and diversify your portfolio to lower overall risk.