An efficient use of a Tax-Free Savings Account (TFSA) is to convert it into a cash-generating machine. This can help you make the most of tax-free withdrawals while providing an additional source of income. To ensure your cash-generating machine gives you maximum returns, invest in stocks with high dividend growth and high yield. Getting both in one stock is difficult, but you can diversify your investments, giving equal weightage to both.
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Ideal TFSA stocks for cash generation
TFSA allows your investments to grow tax-free. It means your dividends and interest are exempt from tax, and so are capital gains tax if you sell shares.
TFSA stock for dividend and growth
Power Corporation of Canada (TSX:POW) is an ideal TFSA investment because of its high dividend-growth rate of 9%. The company has grown its annual dividends between 6% and 10% over the last 12 years. There was only one exception in 2021 when Power Corporation of Canada grew its dividend by 2.7%.
Power Corporation of Canada is a financial holding company that holds IGM Financial and Great West Lifeco and earns income from the dividends they pay. It passes on this dividend to its shareholders. The source of recurring income is insurance premiums and asset management charges. As a holding company, Power Corporation doesn’t have operational risks, but it is exposed to dividend decisions of the operating companies.
Power Corporation has been unlocking shareholder value by restructuring its portfolio, which also includes energy assets and alternative investments. It has recently established a $150 million Sagard AI Fund, which will invest in artificial intelligence companies. Its performance will help boost the share price. Meanwhile, insurance and asset management will drive dividends.
Despite 9% dividend growth, its dividend yield is 3.26% due to 14% share price growth in 2026 year-to-date. Hence, do not dismiss this stock because of the lower yield. It is giving both dividend and capital growth.
TFSA stock for high yield
SmartCentres REIT (TSX:SRU.UN) is a stock to buy in a TFSA for its 6.35% dividend yield. It managed to pay a higher yield because of consistent rental income from Walmart and Walmart-anchored stores. SmartCentres and Walmart’s partnership dates back to 1999, wherein the real estate investment trust agreed to develop shopping centres exclusively around Walmart stores. Now it is developing city centres around Walmart stores, which include office space, residences, and storage facilities.
Optimum use of its land, with every piece generating income from diversified sources, makes it an ideal dividend business to own. Add to this SmartCentres’s 21-year history of paying dividends without any dividend cuts.
A $10,000 investment can generate $481 in annual dividends
The two stocks above can provide you with cash throughout the year through monthly payouts and quarterly bonuses. The high-yield SmartCentres REIT gives monthly payouts. A $5,000 investment can buy 172 units of SmartCentres REIT and give $26.52 cash every month. A $5,000 investment in Power Corporation of Canada can buy 61 shares and give $40.72 cash every quarter.
When you total it up, a $10,000 investment can yield $481 in annual dividends. If Power Corporation of Canada keeps increasing its dividend by 6% on average, your dividend income can grow to $523.8 by 2030.
| Stock | Average stock price in May | Dividend per share | Number of shares bought from $5,000 | Total Dividend Amount |
| POW | $82.00 | $2.67 | 61 | $162.87 |
| SRU.UN | $29.00 | $1.85 | 172 | $318.21 |
| Total | $481.08 |
