Building a portfolio that can produce tax-free passive income is a dream of every investor. It’s also something that Canadian investors can achieve by using a Tax-Free Savings Account (TFSA) and investing in the right stocks.
That’s because the TFSA’s unique structure allows for every dollar contributed and dividend earned to be tax-free. Not only does this supercharge compounding, but it can also take the stress out of picking the right stocks to invest in over the long term.
There’s no shortage of great stocks on the market to start earning that tax-free passive income. Here’s a look at three options to consider buying that offer stability, diversification, and growing dividends.
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Sun Life is a reliable dividend compounder
The first stock for investors seeking tax-free passive income is Sun Life (TSX: SLF). Sun Life is one of Canada’s most dependable financial companies with a portfolio covering insurance, wealth management, and asset management.
Sun Life’s portfolio includes operations not just in Canada, but also in the U.S. and in multiple Asian markets. That international exposure fuels long-term growth opportunities and provides a hedge against North American markets.
This gives Sun Life a unique and diversified earnings base that can withstand market volatility over longer periods. More importantly, that mix allows Sun Life to generate steady cash flow, which in turn supports its long history of paying and increasing dividends.
As of the time of writing, Sun Life offers a quarterly dividend with a yield of 3.99%.
For TFSA investors, Sun Life offers a blend of stability and compounding potential that makes it a strong anchor in any tax-free passive-income portfolio.
Telus offers long-term income
Investors seeking tax-free passive income from a TFSA should look closely at Canada’s big telecom stocks. Telus (TSX: T) in particular stands out as one of the most intriguing names for investors to consider.
Telus offers the typical bevy of subscription-based services to customers across Canada. Canadians rely on wireless, internet, TV and wireline segments daily, which translates into an impressive defensive moat.
For Telus, that defensive appeal means a recurring revenue stream that is both stable and predictable. More importantly, the essential service nature of those segments allows Telus to pay out one of the highest-paying yields on the market.
As of the time of writing, Telus’s yield works out to 10%.
Beyond the core telecom subscription segments, Telus has expanded into offering digital services to niche segments of the market in recent years. This includes areas such as healthcare and agriculture. These add an additional layer of diversification and open new avenues for growth.
For TFSA investors seeking tax-free passive income, Telus provides a dependable payout backed by a business model built on necessity and recurring demand.
Enbridge is the cornerstone income stock
One final pick for investors looking to establish a tax-free passive income stream is Enbridge (TSX: ENB). Enbridge is an energy infrastructure behemoth. The company operates one of the largest and most complex pipeline networks on the planet.
The pipeline business transports nearly one-third of all North American-produced crude and an equally impressive amount of natural gas. Both operate under long-term, regulated contracts, meaning that Enbridge generates predictable and stable cash flow year after year.
This consistency has allowed Enbridge to invest in growth and maintain one of the strongest dividend streaks in the country. As of the time of writing, Enbridge offers a yield of 5.16% and has provided investors with over 30 consecutive years of increases.
Beyond its core pipeline operation, Enbridge offers equally impressive segments that include both a natural gas utility and a growing renewable energy segment.
For TFSA investors, Enbridge remains a cornerstone holding for building reliable, tax-free passive income.
How to earn $2,400 a year in tax-free passive income
Enbridge, Telus and Sun Life are a diversified trio of stocks that can provide tax-free passive income. Earning $2,400 a year in passive income or more can easily be attained using the allocation below.
| Company | Recent Price | Total Investment | No. Of Shares | Dividend | Total Payout | Frequency |
| Sun Life Financial | $91.41 | $13,000 | 142 | $3.60 | $511.20 | Quarterly |
| Telus | $16.66 | $13,000 | 780 | $1.67 | $1,302.6 | Quarterly |
| Enbridge | $73.75 | $13,000 | 176 | $3.88 | $682.88 | Quarterly |
| Total: | $2,496.68 |
