The Tax-Free Savings Account (TFSA) is a great tool to build a passive income pool, as withdrawals are tax-free. You invest your after-tax income in the TFSA, and the Canada Revenue Agency (CRA) allows you to grow it tax-free. This means you can rebalance your portfolio or reinvest dividends without paying capital gains or dividend tax. You can make the most of this account by investing in high-yield stocks and those that offer a dividend reinvestment plan (DRIP).
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Two stocks ideal for TFSA passive income
High-yield stocks give immediate returns and are ideal for those who need the passive income now. However, a high yield also brings risks.
A passive income stock for high yield
Telus Corporation (TSX:T) is an ideal high-yield stock that offers a 9.9% yield. The yield increased because the stock price has fallen over the years. The big three Canadian telecom stocks saw a reversal in growth after the 2022 network sharing regulation opened the oligopoly market to price competition.
Building a fibre network in the vast lands of Canada is expensive. The significant capital to build the infrastructure itself acted as the entry barrier. However, small players are now using Telus’s network to offer broadband services. The price war was too harsh on Telus and BCE, which had already taken on billions in debt to build the fibre infrastructure.
Telus aims to deleverage its balance sheet to 3 times its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by 2028. There are only two ways to do it: either increase EBITDA or reduce debt.
Telus is gradually looking to improve its dividend payout ratio. The company calculates this ratio as 73% of free cash flow after excluding the amount allocated to DRIP. Although the DRIP amount stays in the company, it comes with an obligation to give equivalent shares, which will also bear similar dividends as others. After adding the DRIP shares, the payout ratio is 112% of free cash flow in the first quarter of 2026.
High debt has been keeping Telus’s share price from growing. If Telus’s management decides to slash dividends by 40%, it can save $1 billion in dividend payments, which can be channeled towards reducing debt. However, it might be the last resort. Even after a cut, the yield would be 6%, which is attractive in the current environment.
A $10,000 investment in Telus through a TFSA can get you $984.70 in annual dividends in four quarterly installments, assuming no dividend cuts.
A passive income stock for inflation adjustment
CT REIT (TSX:CRT.UN) is a stock to buy for its monthly payouts. As a real estate investment trust, it has to distribute most of its rental income to unit holders. CT REIT’s interconnected business model with its parent Canadian Tire helps it monetize the rental expense of the retailer. It is tax-efficient as rent is a tax-deductible expense for Canadian Tire and a distributable income for the REIT.
You can gain from their arrangement. Canadian Tire works with CT REIT to acquire, intensify, or develop a new store. The REIT secures the occupancy before acquiring or developing the store. Such assured return reduces the need for capital recycling, on which other REITs rely. (Capital recycling is a process whereby REITs sell their lower-income generating property to buy higher-income generating property.)
At the first-quarter 2026 earnings call, CT REIT’s chief executive officer announced a 3.5% dividend increase to $0.98 effective July 2026, marking the 13th consecutive year of distribution growth.
A $10,000 investment in CT REIT through a TFSA can get you $553 in annual dividends in 12 monthly installments. I say $553 because no dividend tax will be deducted when invested through a TFSA.
| Stock | Average stock price in May | Dividend per share | Number of shares bought from $10,000 | Total dividend amount |
| T | $17.00 | $1.67 | 588 | $984.71 |
| CRT.UN | $17.75 | $0.98 | 563 | $553.24 |
| Total | $1,537.95 |
Investor takeaway
Long-term investments give good returns. However, staying invested for long is a luxury only a few can afford. Unexpected expenses may disrupt your budget and force TFSA withdrawals. If you have been withdrawing frequently from a TFSA to make ends meet, the above two passive income stocks are ideal investments for you.
