© Reuters. Passive income TFSA: how to easily earn $350/month tax-free!
The Tax-Free Savings Account (TFSA) is a great tool for Canadian investors who want to create and grow passive income streams.
Stocks are a great way to increase your passive income If you’re a retiree or a conservative investor, having a variety of passive income streams is extremely important. Many traditional passive income investments (like rental properties, vacation rentals, or small businesses) are hardly passive. Often they require a lot of work and attention.
This is why investing in the stock market can be an excellent alternative. You can buy stocks of quality companies, collect monthly or quarterly dividends, and even earn capital on the upside. Yet you have no management responsibility. Likewise, stocks are very liquid. You can buy and sell them quickly and cheaply. Liquidity can provide great flexibility.
The only challenge is that liquidity can also make stock markets volatile in the short term. Therefore, any stock buyer should be patient and have a long-term horizon (at least three to five years).
Grow your wealth by investing through a TFSA If you want to invest for the long term, the TFSA is perfect. All capital gains and earned income are tax free! This is the best way to keep all your passive income and allow it to accumulate by reinvesting it. Slowly but surely, your passive income streams could grow and potentially even multiply.
If you want to earn steady streams of passive income, two reliable dividend stocks to own for the long term are TELUS (:T)(NYSE:TU) and Enbridge (TSX:TSX:)(NYSE:ENB).
TELUS: Strong prospects for dividend growth TELUS has a long tradition of consistently growing its dividend. Over the past 15 years, it has compounded its dividend rate of 8.6% per year. In the last quarter alone, it increased its dividend by 7.1% compared to the previous year. Today, it pays a quarterly dividend of $0.3386, which equates to a dividend yield of 4.46% on an annual basis.
TELUS is one of the largest telecommunications providers in Canada. Everyone needs cell and internet coverage. It is as crucial as gas or electricity in our modern world. This provides TELUS with very consistent annual cash flow which amply supports its dividends.
As TELUS completes an oversized investment cycle, it expects free cash flow to increase significantly. TELUS is also gaining traction in several of its fast-growing digital business segments. These factors should support strong dividend growth and strong capital returns going forward. This makes TELUS an ideal passive income store to hold in your TFSA for years and years to come.
Enbridge: A long history of passive income returns Enbridge (TSX:ENB)(NYSE:ENB) is another top passive income stock. It has increased its dividend at a compound annual rate of 12% over the past 15 years. Its current annual dividend of $3.44 per share is now 454% higher than it was in 2007! Today, it pays a very attractive dividend yield of 5.91% at its current price of $58.
Recently, Enbridge’s dividend growth rate has slowed to around 3-7% per year. With a market cap of $117 billion, it’s a huge company. It displaces 20% of consumption in the United States and 25% of production in North America!
Lately, the company has focused on diversifying its business into renewable energy, renewable natural gas, LNG and export facilities. Its well-rounded business is heavily contracted, so it can afford to pay for its high-yielding passive income stream.
Today, you can contribute up to $81,500 to your TFSA. If you split that between the two stocks above, you could potentially earn up to $4,237.25 per year, or $350 in passive income per month.
The article Passive income TFSA: how to easily earn $350/month tax-free! appeared first on The Motley Fool Canada.
The stupid contributor Robin Brown holds positions at TELUS CORPORATION. The Motley Fool recommends Enbridge and TELUS CORPORATION.
This article first appeared on The Motley Fool
