How I’d Use $7,000 to Build a Dividend-Growth Machine in My TFSA

Investing in dividend stocks that consistently increase their dividends, have sustainable payouts, and offer high yields can turn your Tax-Free Savings Account (TFSA) into a dividend growth machine. With the TFSA contribution limit set at $7,000 for 2025, here are two TSX stocks I would consider adding now to my portfolio to generate a reliable and growing passive-income stream.

TFSA stock #1

Canadian Natural Resources (TSX:CNQ) is a high-growth dividend stock that can enhance the TFSA portfolio’s income-generating capacity. This Canadian energy giant is known for its solid payout history and has raised its distributions for 25 consecutive years at a compounded annual growth rate (CAGR) of 21%. In addition, CNQ stock offers a high yield of 5.4%.

While the oil and gas producer is an attractive income stock, it has delivered stellar capital gains of about 384% in the last five years.

While CNQ stock is currently under pressure amid macro uncertainty, the energy giant’s fundamentals remain solid. Its diversified, high-quality assets and ability to generate solid cash flows position it well to pay and increase its dividend uninterruptedly.

Canadian Natural Resources’s solid production mix, long-life and low-decline assets, efficient operations, and disciplined capital allocation will drive its distributable cash flow. Further, higher production from its zero-decline, high-value synthetic crude oil operations adds stability to its operations and keeps its reserve replacement costs low.

Looking ahead, its extensive undeveloped land bank will support large-scale drilling programs, driving its growth and profitability in the coming years. Further, the company’s extensive pipeline of low-capital projects and opportunistic acquisitions will support its future growth and payouts.

TFSA stock #2

Telus (TSX:T) is another stock that could transform your TFSA into a dividend-growth machine. Canada’s leading wireless service provider has rewarded its shareholders with higher dividend payments for years. The company has increased its dividend 27 times since 2011 and offers a high yield of 7.6%.

Notably, Telus focuses on returning higher cash to its shareholders through its multi-year dividend-growth program. Telus targets annual dividend growth of 3% to 8% through 2028. Further, its dividend payout ratio is 60-75% of free cash flow, which is sustainable in the long run.

Strong earnings growth, moderating capital expenditures, and free cash flow expansion will support the company’s future dividend growth. Thanks to its growing earnings base and sustainable payout ratio, Telus looks well-positioned to reinvest in growth initiatives and raise dividends in the future.

The telecom company will continue to benefit from its high-quality asset base. Moreover, investments in infrastructure and a focus on enhancing coverage and reliability of its network through spectrum acquisitions and infrastructure upgrades bode well for growth.

Telus has also diversified its revenue base, which adds stability and generates incremental sales. In addition, Telus’s ability to expand its user base profitably, maintain a lower churn rate, and focus on reducing costs will drive earnings, supporting future payouts.

Earn over $455 in tax-free passive income

Canadian Natural Resources and Telus have solid fundamentals and a strong streak of dividend growth. They also offer high and resilient yields, making them excellent options for generating steady, tax-free passive income.

The table shows that distributing $7,000 equally in these stocks will generate over $455 in tax-free income annually.