How to Convert $40,000 Into a TFSA Income Machine

Want to earn $1,770 of extra dividend income? Here’s how to structure a TFSA portfolio for a mix of income, growth, and stability.

Key Points
  • Pembina Pipeline and Dream Industrial REIT for High Yields: Allocate $20,000 evenly between Pembina (4.6% yield) and Dream Industrial (5.6% yield) to earn a total of $1,026.84 annually from energy and industrial property income.
  • Fortis for Defensive Income: Invest $10,000 in Fortis to gain secure, stable income through its 3.4% yield, providing $337.92 annually with its strong dividend growth track record.
  • Propel Holdings for Fintech Growth: With a $10,000 investment in Propel Holdings, benefit from a 4.12% yield, yielding $403.92 annually, and capitalize on its expanding fintech services for potential growth.

Anyone can use their TFSA (Tax-Free Savings Account) to create a tax-free income machine. The TFSA is very accessible and easy to open at any bank or brokerage. When you invest inside the account, all your income is safe from tax, so it is a great tool for compounding income over time.

If I were starting out with a $40,000 TFSA, this four-stock portfolio could earn as much as $1,770 per year of dividend income.

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.

Source: Getty Images

A top infrastructure stock for rising dividend income

The first stock I would buy with $10,000 is Pembina Pipeline (TSX: PPL). With a dividend yield of 4.6%, your investment would earn $116.13 in dividend income every quarter or $464.52 annualized.

Pembina is the largest gas processor in Western Canada. It is positioned across the entire energy value chain whether it be collection, egress, storage, processing, fractionation, and export. Export will become a larger part of its business when it completes the Cedar LNG facility on the west coast.

Pembina has a strong balance sheet, contracted income streams, opportunities to grow, and a rising annual dividend. It’s a stable solid bet for your TFSA.

A real estate stock with an attractive yield

If you are looking for an elevated income yield that is paid out monthly, consider Dream Industrial Real Estate Investment Trust (TSX: DIR.UN). It yields 5.6% today. A $10,000 investment would earn $46.86 monthly or $562.32 annually.

Dream Industrial has a quality mix of industrial assets. Its focus on urban-located, multi-tenanted properties supports a diverse mix of tenants, industries, and use cases. While the company is sitting on 95% occupancy, its average lease rate trades below market. This means it should enjoy organic growth as it sees rental rates tick up to market on turnover and renewal.

This is a well-managed REIT. It just raised its distribution for the first time in years, signalling that management remains positive on its long-term outlook.

A top utility to hold for defensive income

If you just want security and income, Fortis (TSX: FTS) is one of the best TSX stocks you will find. It is a low-volatility stock that yields 3.4% today. A $10,000 investment would earn $84.48 quarterly or $337.92 annually.

While Fortis may have a compressed yield, you make up for it with the quality of its business. It is 100% regulated, while 98% of its assets are essential transmission or distribution assets. Yet, the business is growing at a nice 7% rate.

FTS stock has a 52-year record of consecutively increasing its dividend. It is a wonderful anchor for any income-generating portfolio.

A top fintech for growth and dividends

Propel Holdings (TSX: PRL) is the counter to Fortis. It is a little riskier, but it also has substantially more upside. It yields 4.1% today. A $10,000 investment would earn $100.98 quarterly income, or $403.92 annually.

Propel offers loans to non-prime consumers in Canada, the U.S., and the U.K. The company has been growing rapidly through its proprietary AI platform. It has grown earnings per share by a 28.6% compounded annual growth rate (CAGR) over the past five years. The lender has substantial opportunity to keep expanding its services in current and new markets.

The biggest risk for Propel is that its business can be very economically sensitive. A major deterioration in the economy could hurt its ability to recover loans. That is why it is best held in a diversified income-generating portfolio.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Pembina Pipeline$63.22158$0.735$116.13Quarterly
Dream Industrial REIT$12.80781$0.06$46.86Monthly
Fortis$75.40132$0.64$84.48Quarterly
Propel Holdings$25.23396$0.255$100.98Quarterly

Fool contributor Robin Brown has positions in Propel. The Motley Fool has positions in and recommends Propel. The Motley Fool recommends Dream Industrial Real Estate Investment Trust, Fortis, and Pembina Pipeline. The Motley Fool has a disclosure policy.

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