Yahoo Finance TFSA 101: Earn $2,010 per Year Tax-Free
Written by Robin Brown at The Motley Fool Canada
The Tax-Free Savings Account (TFSA) is an excellent place for Canadians to earn income (capital gains, dividends, and interest) and accumulate wealth. Just like its name suggests, all income earned in the account is tax-free. That means all the income stays with you.
TFSA: Keep more income, so you can invest for more income
The more income that stays with you, the more you can use to invest in stocks that generate more income. Invest in dividend stocks, earn dividends, re-invest dividends into more stocks, and repeat. It’s an attractive (and easy) way to compound capital over time.
Investors who were Canadian residents and over 18 years of age in 2009 can contribute a total of $95,000 to their TFSA. However, let’s say you have $45,000 (around half that amount) to contribute. That would still help you earn just over $2,000 per year in passive income.
Here’s a mini stock portfolio of three investments consisting of $15,000 each. Of course, having an even more diversified portfolio is preferred to spread out your investment risk, but this example demonstrates three ways you could earn passive income inside a TFSA right now.
Retail real estate for TFSA income
First Capital Real Estate Investment Trust (TSX:FCR.UN) is an interesting dividend stock: It presents a mix of income, value, and safety for a TFSA investor.
First Capital owns some of the highest-quality grocery-anchored retail properties in Canada. The majority of its tenants are staple providers. This has helped provide stable occupancy and rental income.
Likewise, its properties are largely urban-focused. This has supported strong rental rate growth. It also means it is sitting on a large base of valuable land assets that are yet to be optimized or developed.
First Capital yields 4.85% right now. If you invested $15,000 in the REIT today, you would earn $59 of monthly income (or $708 over the course of a year).
A top Canadian energy stock
Another dividend stock ideal for a TFSA is Canadian Natural Resources (TSX:CNQ). This company is one of the best dividend growth stocks in Canada. It just announced its 25th consecutive annual dividend increase. In that time, it has grown its dividend by a 21% compounded annual growth.
Not only is CNQ the largest energy producer in Canada but it is also one of the most profitable. Its free cash flow breakeven is around US$45 per oil barrel. It just became significantly larger with the acquisition of Chevron’s oil sand assets.
Today, Canadian Natural yields 4.15%. If you invested $15,000 in its stock, you would earn about $173 every quarter, or about $690 each year.
A residential REIT with U.S. exposure
BSR REIT (TSX:HOM.UN) is another stock for income and value in a TFSA. It is a great way to get exposure to the U.S. real estate market — but with a TSX-listed stock.
BSR operates a portfolio of apartment properties in some of the top growth regions in the U.S. sunbelt. This has supported strong rental rate growth, especially after the pandemic.
Unfortunately, new apartment supply in the region has temporarily slowed this dynamic. Fortunately, it looks like the market will turn in BSR’s favor in 2025 and beyond.
The REIT has a strong balance sheet, great assets, and a smart management team. It has used the market downturn to buy back a lot of stock. When rental growth recovers, it should drop quickly to the bottom line.
If you put $15,000 into BSR stock, you would earn about $51 monthly, or about $612 over a year.
COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT OVER 1 YEAR |
First Capital REIT | $18.11 | 828 | $0.07167 | $708 |
Canadian Natural Resources | $48.75 | 307 | $0.535 | $690 |
BSR REIT | $18.61 | 806 | $0.0633 | $612 |
Put it all together, and that’s $2,010 of annual passive income.
The post TFSA 101: Earn $2,010 per Year Tax-Free appeared first on The Motley Fool Canada.
Should you invest $1,000 in Canadian Natural Resources right now?
Before you buy stock in Canadian Natural Resources, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Canadian Natural Resources wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,380.01!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 32 percentage points since 2013*.
See the 10 stocks * Returns as of 10/14/24
More reading
Fool contributor Robin Brown has positions in BSR Real Estate Investment Trust. The Motley Fool recommends BSR Real Estate Investment Trust, Canadian Natural Resources, Chevron, and First Capital Real Estate Investment Trust. The Motley Fool has a disclosure policy.
2024
