How to Use Your TFSA to Average $1,265 Per Year in Tax-Free Passive Income

Investing in leading Canadian dividend stocks inside a Tax-Free Savings Account (TFSA) can help generate tax-free passive income. If you still have available TFSA contribution room, it may be worth focusing on companies with a long history of paying dividends and also increasing them over time.

Many of the top dividend-paying TSX stocks are supported by solid balance sheets, reliable cash flow, and business models that can withstand even challenging economic conditions. This strength often puts them in a better position to sustain dividend payments through different market cycles.

With that in mind, let’s explore some of the top TSX dividend stocks and estimate how much you would need to invest in order to earn an average of $1,265 per year in tax-free income.

Passive income stock #1: SmartCentres REIT

TFSA investors looking to build a reliable stream of passive income could consider SmartCentres REIT (TSX:SRU.UN). Known for its durable payouts and convenient monthly distributions, the REIT offers an appealing way to generate steady income. With a yield of more than 6.9%, it stands out as an attractive option for dividend-focused investors.

SmartCentres benefits from a resilient real estate portfolio located in some of Canada’s most desirable markets, where tenant demand remains consistently strong. This ongoing demand supports high occupancy levels, encourages tenant retention, and helps the trust generate stable rental income.

A key strength of SmartCentres is its focus on essential retail properties anchored by well-established national brands. These tenants tend to operate defensive business models, which provide stability even during economic slowdowns. As a result, SmartCentres has high rent collection and maintains solid occupancy year after year.

Looking forward, solid leasing activity should continue supporting net operating income (NOI), while its high-quality tenant base positions the REIT for ongoing rental stability. Additionally, SmartCentres’ large land inventory and strong balance sheet provide room for future growth and steady cash flow generation. Taken together, the REIT’s high occupancy, steady NOI, and diversified revenue base position it well to continue delivering monthly dividends. At present, SmartCentres pays a monthly distribution of $0.154 per unit.

Passive income stock #2: Enbridge

Enbridge (TSX:ENB) is one of the most reliable TSX dividend stocks. It has been consistently paying dividends for 70 years. Moreover, Enbridge has raised its dividend for 31 consecutive years, proving the resilience of its payouts through economic slowdowns and commodity market downturns.

Enbridge stock currently offers an attractive dividend yield of over 5.7%, making it an attractive investment for income-focused TFSA portfolios.

The energy infrastructure company is likely to maintain this dividend growth streak in the long run. Notably, most of the company’s earnings are generated through regulated assets and long-term contracts, which helps reduce exposure to short-term fluctuations in commodity prices. Adding to this stability, roughly 80% of its EBITDA is protected against inflation, supporting its dividend payments over time.

Enbridge targets a payout ratio of 60% to 70% of distributable cash flow (DCF), ensuring it can continue rewarding investors while retaining sufficient capital for growth projects. Further, its diversified revenue streams and continued strength in its core liquid pipeline and utility operations position it well for steady growth.

Its solid dividend growth history, steady earnings and DCF growth, resilient business model, and growing renewable energy demand position it well to pay and increase its dividend.

Earn over $1,265 per year in tax-free passive income

SmartCentres REIT and Enbridge are two strong dividend stocks that can help TFSA investors build a reliable, tax-free passive income stream.

If you invest $20,000, split evenly between the two, you could earn over $1,265 per year in tax-free dividends. SmartCentres REIT would provide about $691.20 annually, and Enbridge would add roughly $574.24 annually.

Together, they offer a simple way to generate a steady income inside a TFSA without paying taxes on the returns.