How to Use Your TFSA to Average $2,650 Per Year in Tax-Free Passive Income

The Tax-Free Savings Account (TFSA) a great place to build an income stream. You don’t pay tax on your dividends, interest, and gains. That means all the income sticks with you. With the right mix of dividend stocks inside a TFSA, you can earn over $2,500 of income per year.

If you want a mix of quality dividend stocks, a 4% average portfolio yield will give you a good mix of quality companies and attractive income returns. You would need around $63,000 invested to hit a $2,500 per year minimum income target at that yield.

Here is how I would put together an income portfolio with $63,000 inside a TFSA.

Dream Industrial: An income dream for your TFSA

I would firstly put $15,750 into Dream Industrial Real Estate Investment Trust (TSX: DIR.UN). It yields 4.8% today. Your investment would earn $63.53 monthly or $762.30 annually.

Dream manages a large portfolio of multi-tenanted industrial properties across Canada, the U.S., and Europe. It just announced a substantial acquisition to buy a major management and development platform in Europe. This will place Dream as the leading asset manager in Europe.

The REIT has solid occupancy and a diverse mix of high-credit tenants. It’s an intriguing buy even today.

Topaz Energy

Topaz Energy (TSX: TPZ) is another stock to buy with $15,750 in a TFSA. It yields 4.3% right now. Your investment would earn $172.20 quarterly or $688.80 annualized.

This is an energy infrastructure and royalty business in Western Canada. It has assets in some of the best basins in the Canadian energy patch. As more wells are drilled in these regions, it sees its income organically grow. It also regularly acquires land royalties into its stream.

This is a really well-managed business that has a great record of dividend growth. As energy sector sentiment improves in Canada, Topaz should continue to see solid total returns over time.

Pembina Pipeline: A top TFSA infrastructure stock

Pembina Pipeline (TSX: PPL) is an attractive TFSA income stock. It yields 4% today. A $15,750 investment would earn $160 quarterly or $640 annually.

Pembina operates a diversified energy infrastructure business. It plays a crucial role in getting Canadian energy to end markets. Over 85% of its income is contracted. That income widely supports its dividend.

Pembina has an attractive mix of capital growth projects including an LNG export terminal, data centre power, and various pipeline and midstream expansions. If you want a well-managed business with a steadily rising dividend, this is a great stock to hold in a TFSA.

Propel Holdings

Propel Holdings (TSX: PRL) is another stock to add to your TFSA income portfolio. It yields 3.5% today. Your $15,750 investment would earn $139.50 quarterly or $558.54 annually.

This is the wildcard stock in the mix. It is a little bit higher risk, but also higher reward. Propel provides small, short-term loans to non-prime consumers. It’s a risky segment. However, Propel uses an A.I. platform to smartly and efficiently underwrite loans.

The company has been growing at a double-digit rate. It continues to see strong opportunities in the U.K. and United States. This stock is a bit sensitive to interest rates and the broader economy, so that is something to monitor while you own this investment.

The Foolish takeaway

By combining these four stocks in a TFSA, you would be set to earn $2,650 of tax-free annual income.