A regular rebalancing of your Tax-Free Savings Account (TFSA) is healthy, as it allows you to book profits by selling the rally. If you are looking to reinvest your booked profits in some assured passive income, there are exciting opportunities in dividend stocks. A $20,000 investment can generate $1,200 annually, which you can reinvest or use as passive income depending on your financial needs.
Four TFSA stocks to generate passive income
When building a passive income pool, the first thing to consider is building diverse cash streams. Each stream should be independent of another, which means choose your stocks across different sectors. Even within sectors, their income should give assured dividends in an economic crisis.
Growing passive income
Power Corporation of Canada (TSX:POW) can give you strong dividend growth in a growing economy and when facing rising risks. It holds life insurance and wealth management companies that earn cash from premiums and management fees. When risks increase, more people buy insurance, and the company enjoys high premiums. When investment opportunities are ripe, more people invest in mutual funds, earning higher management fees on a larger asset portfolio.
POW stock is in its upcycle, growing 47% year-to-date to $75. It has also grown its dividend by 9% to $2.67 per share. However, Power Corporation of Canada is vulnerable to economic crisis. The 2008 Financial Crisis affected all financial companies. Power Corporation showed resilience by sustaining its dividend and pausing dividend growth from 2009 to 2014. Evidently, you can rely on it for a steady income.
Monthly passive income
SmartCentres REIT (TSX:SRU.UN) is a good option for monthly payouts. Its diversified property portfolio, – comprising open-door retail stores, residential, commercial, industrial, and storage facilities at city intersections – gives it stability in an economic crisis. The REIT has even thrived in a housing crisis with recurring cash flow from its largest tenant, Walmart.
Although its 89.2% dividend payout ratio and high debt on the balance sheet kept the REIT’s unit price stressed for two years, it is now recovering as housing unit sales unlock liquidity. This has seen the unit price recover and reach near its 52-week high of $28.30. The REIT is still a buy for its 6.5% yield.
Balancing risky passive income streams
Telus Corporation (TSX:T) has a pretty high yield of 9.9% as its stock price nosedived over fears of a dividend cut. While there is risk, a dividend cut will ease out anxiety and give investors a clean slate to start with. A $1 billion savings that a dividend cut could unlock can help Telus accelerate debt repayment and increase the stock price. However, a cut is the last option if other means of reducing debt don’t give the desired results. For the time being, Telus has paused dividend growth.
Balancing the risk of Telus is the assured dividend of TC Energy (TSX:TRP). The stock is in an upcycle, surging 18% year to date. TC Energy’s Coastal GasLink Pipeline collects gas from other connecting pipelines in Alberta and transmits it to LNG Canada, an export facility. It will be the key beneficiary of liquified natural gas exports to Europe and other countries. The toll money will keep dividends flowing in.
How $20,000 could generate $1,200 in passive income
A $5,000 investment in each of the above stocks at the current trading price can buy you income-generating shares. Adding up the monthly and quarterly dividend payouts, you can get $1,238 in annual passive income. Since Power Corporation of Canada and TC Energy grow their dividends annually, your passive income could adjust to inflation.
| Stock | Share Price | Dividend per Share | Dividend on $5,000 | Number of Shares |
| Power Corporation of Canada | $75.00 | $2.67 | $178.89 | 67 |
| SmartCentres REIT | $28.30 | $1.85 | $327.45 | 177 |
| TC Energy | $75.00 | $3.51 | $235.17 | 67 |
| Telus | $16.85 | $1.67 | $497.18 | 297 |
| Total | $1,238.69 |
