Canadian investors are wondering how they can get the best use of their self-directed Tax-Free Savings Account (TFSA) to generate reliable passive income to complement the Canada Pension Plan, Old Age Security, and work pensions in retirement.
One popular TFSA investing strategy involves buying stocks with good track records of delivering steady dividend growth.
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TFSA advantage
The government launched the TFSA in 2009 as an additional tool for Canadians to set cash aside to meet future financial goals. Each year, the contribution space increases. The TFSA limit in 2025 is $7,000. This brings the cumulative maximum TFSA contribution room to $102,000 per person. Unused contribution space can be carried forward. In addition, any funds that are removed from the TFSA open up equivalent contribution room in the following calendar year.
Interest, dividends, and capital gains generated inside a TFSA on qualifying investments are not taxed. This means the full amount of the earnings can be withdrawn as tax-free income or reinvested to grow the savings.
As such, it generally makes sense for people to maximize their TFSA contribution space before holding income-generating investments in a taxable account.
Fortis
Fortis (TSX:FTS) is a good example of a top TSX dividend-growth stock. The board increased the dividend in each of the past 51 years and intends to boost the distribution by 4% to 6% annually through at least 2029.
Fortis trades near $67.50 at the time of writing compared to the 2025 high of around $71, so investors have a chance to pick up the stock on a dip.
Fortis grows through acquisitions and organic projects. The company hasn’t made a large purchase for several years, but falling interest rates could trigger a new wave of consolidation in the utility sector. On the development side, Fortis is working through a $26 billion capital program that will increase the rate base from $39 billion in 2024 to $53 billion in 2029. As the new assets are completed, the boost to cash flow should support the planned dividend growth.
Investors who buy Fortis at the current price can get a dividend yield of 3.6%.
Enbridge
Enbridge has increased its dividend annually for three decades. The pipeline giant is best known for its oil and natural gas transmission and storage infrastructure, but it also owns energy export terminals, natural gas utilities, and a developer of solar and wind projects.
Enbridge is working on a $32 billion capital program. Revenue growth from these new assets, along with contributions from recent acquisitions, including the US$14 billion purchase of three American natural gas utilities last year, will drive earnings expansion to support ongoing dividend increases.
Enbridge’s share price is up more than 20% in the past year. Despite the rally, the stock still provides a dividend yield of 5.6%.
The bottom line
Fortis and Enbridge have increased their dividends annually for decades and should continue to boost their payouts in the coming years. If you have some cash to put to work in a self-directed TFSA focused on passive income, these stocks deserve to be on your radar.
