When it comes to building long-term wealth in Canada, the Tax-Free Savings Account (TFSA) is hard to beat. One of the smartest ways to use your TFSA is by holding dividend-paying stocks that reward you year after year. Not only do dividends add passive income to your account, but in a TFSA, those payouts are completely tax-free. One solid candidate to consider right now is The Toronto-Dominion Bank (TSX: TD).
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Why TD
TD is one of the country’s largest and most trusted financial institutions. It’s a blue-chip stock that many Canadians already know well, whether they bank there or hold it in their TFSA. As of writing, TD is trading around $90 per share and offering an annual dividend of $4.20 per share. That gives it a dividend yield of about 4.6%, making it a strong choice in the current market environment.
In fact, if you were to invest $10,000 in TD stock, here is what you could end up with in annual passive income. And remember, all of that income would be completely tax-free if held in a TFSA. You could take the cash out to help with everyday expenses or reinvest it into more shares to let your money compound faster. Either way, it’s a reliable stream of income from a rock-solid company.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | INVESTMENT TOTAL |
|---|---|---|---|---|---|---|
| TD | $90.24 | 110 | $4.20 | $462.00 | Quarterly | $9,926.40 |
Recovering nicely
What makes TD stand out from other bank stocks is its mix of stability and growth. In its most recent earnings report for the first quarter of fiscal 2025, TD reported net income of $3.6 billion, holding steady from the previous year. Earnings per share (EPS) came in at $1.57, slightly ahead of analyst expectations. The Canadian personal and commercial banking division performed especially well, bringing in $5.2 billion in revenue, up 5% year over year. Loan and deposit volumes continued to rise, helping offset some softness in other areas.
The bank’s U.S. operations did face headwinds. Regulatory pressure, including fines and asset growth limitations imposed by U.S. regulators, have created short-term challenges. But TD is actively working to strengthen its compliance infrastructure and internal controls. It has also shown discipline in managing expenses and capital. While these issues may weigh on sentiment in the short term, TD’s underlying fundamentals remain sound, especially on the Canadian side of the business.
A stable stock
Another reason TD remains attractive is its commitment to growing its dividend. It has a strong track record of consistent dividend hikes, supported by stable earnings and a conservative payout ratio. Even through turbulent markets and rising interest rates, TD has maintained its dividend, showing that income investors can count on it. If the bank continues to grow earnings as expected, there’s a good chance that the $4.20 payout will rise over the next few years. Holding TD in your TFSA means you benefit from that growth without worrying about tax erosion.
It’s also worth noting that Canadian bank stocks tend to perform well over time, especially when purchased at reasonable valuations. TD has a diversified business model, which includes retail banking, wealth management, and capital markets. That diversification helps it weather economic ups and downs. It also has a strong capital position, with a CET1 ratio above 13%, giving it a buffer to manage risks and return capital to shareholders.
Bottom line
For passive income investors who want a combination of stability, yield, and long-term upside, TD checks all the boxes. It offers a dependable dividend, solid earnings, and a history of resilience through market cycles. And with shares trading at a reasonable price-to-earnings ratio compared to historical averages, it may be a good time to pick it up while it’s still fairly valued.
In a world where the cost of living keeps rising and interest rates fluctuate, having a steady source of tax-free income from a trusted institution like TD is something many Canadians can appreciate. Whether you’re just getting started with your TFSA or looking to add a new anchor to your portfolio, TD stock is worth serious consideration.
