Transform Your TFSA Into a Cash-Creating Machine With $7,000

Do you remember the story of the golden goose that produced a golden egg daily? While that was a fairy tale, there is a way you can have your own golden goose that keeps giving cash every month or quarter. The Tax-Free Savings Account (TFSA) can become the cash-creating machine that gives you tax-free income while keeping your invested amount intact.

How to convert your TFSA into a cash-creating machine

Let’s think logically. Money makes money. A building owner can convert their building into a cash-creating machine by renting it out. While his initial investment is safe in the form of the building value, he keeps earning cash from rent.

Similarly, a lender earns regular cash from interest paid by the borrower. A landowner, a book writer, and a product developer earn cash from royalty payments. A construction company earns cash from tolls and a utility company from bills and subscriptions.

An investor can create cash by investing in all the above options and diversifying their cash flow streams.

Creating TFSA cash flow from a portfolio of infrastructure stocks

Canada has a vast land area and rich natural resources, which makes infrastructure a revenue-generating source. TC Energy (TSX: TRP) has natural gas pipelines and earns toll money for transmitting gas. Since it takes billions of dollars and several permits to build a pipeline, there are few players in the market.  

TC Energy’s infrastructure model has matured to a level where it can comfortably allocate cash flows towards debt servicing, capital expenditure, and dividend payments. The company has been growing its dividends for the past 24 years, showing the resilience of its financial structure. The stock is offering a 5% yield, which you can invest in its dividend reinvestment plan (DRIP) and compound your future payouts.

Creating TFSA cash flow from a portfolio of high-yield stocks

While infrastructure stocks can give you secure payouts, high-yield stocks can give you higher payouts for taking the risk of dividend cuts. This risk may or may not materialize. And if it doesn’t materialize, you benefit from higher payouts for years.

Fiera Capital (TSX: FSZ) is currently offering a 14% yield, as its stock price dipped 37% from December 2024 on the back of weak equity market performance. So far, the company’s payout ratio has not exceeded 100%, which means the possibility of a dividend cut is relatively low.

BCE (TSX: BCE) stock is currently offering a 12.2% yield as the stock price has dipped 57% in almost three years amid constant headwinds. The company’s cash flow is stressed, as high debt and interest rates have increased finance costs. Moreover, restructuring has increased impairment costs and severance pay. All this increased its dividend payout ratio above 100% since 2000 and forced the company to slow dividend growth in 2024 and pause growth in 2025.

There is a high risk of a dividend cut, but the company is compensating by offering DRIP shares at a 2% discount.

Parex Resources (TSX:PXT) is offering an 11.2% dividend yield as the stock has dipped 50% since November 2024. It produces oil in Colombia and sells it to international markets at London’s Brent Crude Index prices. The company benefits if the oil price is above US$65/barrel.

The stock fell as oil prices fell. However, it can sustain its payout as the company has been repurchasing shares, which reduced its dividend payments despite growing its dividend per share. There is a relatively lower risk of a dividend cut, but any sharp movement in oil prices could increase the risk.

A $7,000 investment in a TFSA could give $792 per year

A $2,000 investment in each of the above three high-yield stocks and a $1,000 investment in a safer TC Energy stock can balance risk and reward. Here’s how many shares a $7,000 investment can buy and the dividends those shares can give. Since this investment is in a TFSA, you pay no dividend tax.