The TFSA is one of the best investment vehicles available to Canadians. Given the right investments, the account can generate a steady stream of tax-free TFSA cash flow.
Even better, if investments that combine stability and dividend growth are selected, that portfolio can start generating income while still having plenty of room to grow.
Investors looking to build that TFSA cash flow may want to consider these three investments as part of their portfolio.
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Option #1: The defensive foundation
Fortis (TSX:FTS) is one of the most defensive dividend stocks on the market. The company operates regulated utility businesses that provide essential electricity and natural gas services. Fortis’ operations cover parts of the U.S., Canada, and the Caribbean, making it one of the larger utility stocks in North America.
Thanks to the essential nature of Fortis’ operations, demand for its services remains steady regardless of what is happening in the economy. People still need electricity and natural gas even during tough times. That gives Fortis predictable and recurring cash flow backed by one of the best defensive moats on the market.
It also allows the company to invest in growth and pay a handsome dividend that can contribute to an investor’s TFSA cash flow.
As of the time of writing, Fortis offers a 3.2% dividend yield. That’s not the highest yield, but it is well-covered and continues to grow. In fact, Fortis has the second-longest dividend-growth streak on the market at 52 consecutive annual increases.
Option #2: Big bank income and long-term growth
It would be hard to compile a list of stocks to generate TFSA cash flow without mentioning at least one of the big bank stocks. Royal Bank of Canada (TSX:RY) is the largest of the big banks and adds exposure to the financial sector in this TFSA cash flow portfolio.
Royal Bank earns revenue from personal and commercial banking, wealth management, insurance, and capital markets. That diversification has helped it to generate consistent results and steady dividend growth over the years.
As of the time of writing, Royal Bank offers a dividend yield of 2.4%. And like Fortis, Royal Bank has paid for decades. In fact, Royal Bank has paid dividends without fail for over a century and provided annual increases to investors for over a decade.
Option #3: Income and diversification from a single ticker
Rounding out the list of investments to include in our TFSA cash flow portfolio is an ETF – more specifically, the iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI).
XEI provides exposure to a broad collection of established Canadian dividend stocks. Those holdings are concentrated in income-heavy areas of the market, including financials, energy, utilities, and telecommunications.
In other words, the components of this ETF contain some of the best-known dividend payers in Canada from a broad cross-section of the market. That fact alone makes this an intriguing option for investors seeking diversification and income.
As of the time of writing, the fund offers a monthly distribution that carries a yield of 3.5%. Unlike a fixed dividend rate, the ETF’s monthly distribution can fluctuate based on the income generated by its underlying holdings.
How much TFSA cash flow can $20,000 generate?
One of the advantages of the TFSA is the tax-free growth it can offer investors. That growth can compound, quite literally, when dividends are reinvested over longer periods.
Given the trio of investments mentioned above, here’s how much splitting a $20,000 investment between them will generate:
| Investment | Recent Price | Amount Invested | No. of Shares | Dividend | Total Payout | Frequency |
| Fortis | $79.61 | $6,000 | 75 | $2.56 | $192.00 | Quarterly |
| Royal Bank of Canada | $293.47 | $6,000 | 20 | $7.04 | $140.80 | Quarterly |
| iShares S&P/TSX Composite High Dividend Index ETF | $40.28 | $8,000 | 198 | $1.41 | $279.18 | Monthly |
| Total: | $611.98 |
The amount itself is not enough to retire on, but this income can continue to grow over the long term. Investors can reinvest the dividends, add new TFSA contributions, and benefit from future dividend increases.
In my opinion, one or all of the above are great investments to add to any well-diversified TFSA portfolio.
