The Canada Revenue Agency (CRA) has maintained the annual Tax-Free Savings Account (TFSA) contribution ceiling for 2025 at $7,000. Based on the latest BMO Investment Survey results, more users will contribute to the popular registered account this year.
Poll respondents worry about a potential recession. They see the TFSA as the right fit to prepare for any eventuality. If you use your $7,000 limit to create tax-free income, consider investing in Emera (TSX: EMA) and Diversified Royalty Corporation (TSX: DIV). The former is a defensive holding, while the latter collects royalties from ongoing business concerns.
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Play defence and earn
Emera is a safe haven for risk-averse investors. Besides the stable business model, this utility stock is a dividend grower. At $61.15 per share, current investors are up +15.33% year to date. The dividend offer is 4.76%, with a potential growth of up to 2% annually. EMA has raised dividends for 18 consecutive years.
The $18.15 billion energy and services company own regulated electric and natural gas utilities in Canada, the U.S., and the Caribbean. In 2024, Emera’s adjusted net income rose nearly 5% year over year to $849 million due to higher earnings from all utility assets.
This year, Emera will execute its largest ever five-year $20 billion capital plan that will help further grow earnings and cash flow for shareholders. Its chief executive officer (CEO), Scott Balfour, said, “We see substantial growth opportunities within our regulated businesses, and our capital allocation and portfolio optimization decisions will position Emera to deliver increased value to shareholders.”
“By targeting an average EPS (earnings per share) growth rate of 5% to 7% over the next three years and adjusting our dividend growth rate, we are on a course to meaningfully reduce our payout ratio over the next five years,” Balfour added.
Because of the fundamental trends, including the urgency to increase resilience against climate-related challenges, Balfour believes it is a pivotal time for regulated utilities. He is confident that Emera is well-positioned to meet this moment and will play a crucial role in the transition from high-carbon to low-carbon energy sources.
Uninterrupted monthly dividends
Diversified Royalty has kept investors whole on its “monthly” dividend payments since 2014. If you invest today, the share price is $2.83, while the dividend yield is 8.93%. Assuming you use $3,500 to buy 1,237 shares, the money will generate $78.15 in tax-free income in your TFSA.
The $48.7 million multi-royalty corporation receives royalty streams from multi-location businesses and franchisors. Mr. Lube, Canada’s leading quick lube service business, is the largest royalty partner. AIR MILES, Nurse Next Door, Oxford Learning, Mr. Mikes, Sutton, Stratus, and BarBurrito complete the royalty pool.
In the 12 months ending December 31, 2024, the top line increased 15% year over year to $64.99 million, while net income declined 16.1% to $26.62 million versus 2023. Its president and CEO, Sean Morrison, said the royalty partners performed well last year and registered a 5% weighted average organic royalty growth. He noted the varying performances of the royalty partners, with Mr. Lube standing out with double-digit growth.
Equal allocation
Canadians can allocate their $7,000 TFSA between Emera and Diversified Royalty in today’s uncertain economic climate. The payouts are consistent and hefty.
