Between Donald Trump’s inauguration and the ensuing tariffs on other countries and their pause, the stock market is incredibly volatile right now. The ongoing turbulence and trade tensions have dragged oil prices lower, and investors are preparing for a recession.
The pullback in share prices across the board has resulted in losses for many investors. However, opportunistic investors bullish on TSX energy stocks have an opportunity right now. The downturn in share prices has also inflated the dividend yields of some of the top Canadian energy stocks.
Enbridge (TSX:ENB) stock is a top pick for most investors interested in the sector to generate income through dividends since it offers a relatively lower degree of risk tied to commodity prices. However, I think there’s a better way to generate tax-free returns every month: Investing in one of the top Canadian monthly dividend stocks.
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Generating tax-free returns
It is no secret that the Tax-Free Savings Account (TFSA) has been a blessing to Canadian investors since its introduction in 2009. The name suggests that it’s a savings account. While that’s true, it holds potential for so much more. Each year, the contribution limit for the account grows, letting you contribute more “savings” to the account that can grow without incurring taxes. However, you can use it to hold more than just cash.
The interest income from cash held in an account is alright, but interest rates cannot match inflation. To keep pace with or even beat inflation, you need better returns. This is where dividend investing can be your solution.
Enbridge stock is an excellent pick for dividend-seeking investors due to its lengthy 30-year dividend-growth streak. The company’s forward-thinking business model and diversified revenue streams make it a strong choice for long-term investors looking at the big picture to generate quarterly income through dividends.
As of this writing, it trades for $61.05 per share and boasts a juicy 6.18% dividend yield that’s impossible to ignore for your self-directed portfolio.
Monthly income through royalties
Freehold Royalties (TSX:FRU) is a Canadian dividend stock with a monthly payout that offers an almost 10% dividend yield. It is a Calgary-headquartered $1.84 billion market-cap company engaged in acquiring and managing oil and gas royalties. The company has exploration and evaluation assets for natural gas and petroleum interests in Western Canada and the United States. It generates most of its revenue through its domestic segment.
The company manages one of the largest non-government oil and gas royalty portfolios on the continent, boasting 1.1 million drilling acres in the U.S. and 6.2 million acres in Canada. FRU does not do any of the drilling itself. Instead, it has a low-risk business model that lets it generate revenue by allowing others to handle that aspect and earn a portion of the generated revenue.
The company offers investors exposure to a multi-decade inventory of drilling locations across North America, paying them $1.08 per share in annualized dividends that it distributes each month. Backed by a solid business model, the dividends are virtually safe. As of this writing, FRU stock trades for $11.25 per share and boasts a 9.60% annualized dividend yield.
Foolish takeaway
Canadian investors can explore plenty of avenues to create passive-income streams, but dividend investing in a TFSA is one of the best methods to consider. Enbridge stock and other high-quality dividend stocks can be excellent foundations for a self-directed dividend income portfolio. After locking in lower-risk dividends into your portfolio, you can consider slightly riskier assets to boost your monthly income. To this end, Freehold Royalties stock can be a good addition to your TFSA holdings.
