TFSA: How I’m Making $1,250/Year in Passive Dividend Income

This year, I’m collecting $1,254 in dividend income from Toronto-Dominion Bank (TSX:TD) and other stocks.

| More on:

There’s been a lot of talk about passive income on the internet lately. With tech stocks crashing, dividend stocks have come into vogue. Today, people prefer to try for passive dividend income rather than “moon shot” gains, as dividend stocks have been doing better than growth stocks this year.

Whether these passive-income opportunities are real or not is debatable. Generally, the idea that you can earn passive income with no savings is false: you need to invest tens or even hundreds of thousands of dollars to get appreciable dividend cash flow going. However, it is true that dividend stocks do pay you some money for owning them. So, I figured I’d go ahead and reveal exactly how much I, personally, am bringing in in passive Tax-Free Savings Account (TFSA) income each year.

To cut a long story short: the amount is approximately $1,250 per year. It’s from a combination of dividends and interest (mostly dividends), and it has been steadily increasing as I’ve added to my dividend positions this year. I’ve posted screenshots of my two main accounts that pay dividends: as you can see, they pay $1,249 per year combined. I have another smaller account that brings in $5 per year in dividends, bringing the total to $1,254.

How’d I get to this level of passive income?

If you’re looking at the passive income above and wondering how I got it, it took about three-and-a-half years of saving and investing. I’m not going to disclose my portfolio value here, but I have a mix of both dividend stocks and non-dividend stocks.

If I exited all the non-dividend paying positions and invested the proceeds into the dividend stocks I own, I’d be collecting about $2,500 per year in dividends and interest. I’ve chosen not to do that, because I’ve researched all the positions I own thoroughly and believe the non-dividend stocks I own can deliver strong total returns.

Dividend stocks I own: Two examples

I get dividends from about eight stocks and funds in total. In this article, I will explore two of the highest-yielding ones: Bank of America (NYSE:BAC) and Toronto-Dominion Bank (TSX:TD).

Bank of America is a big U.S. bank. I hold its stock in my Registered Retirement Savings Plan (RRSP) and my TFSA. In my RRSP, I pay no taxes on the stock at all (I’ll have to pay some taxes when I retire), in my TFSA, I pay just a small 15% dividend withholding tax.

Bank of America stock has a 2.7% dividend yield. The yield has the potential to rise over time. Interest rates are rising this year, and that’s leading to a big explosion in net interest income at Bank of America. Net interest income means loan interest earned minus deposit interest paid. In the most recent quarter, BAC’s net interest income grew 24% year over year. If the bank keeps up this growth, then it could raise its dividend in the future.

It’s a similar story with TD Bank. In its most recent quarter, reported earnings increased 76% and adjusted earnings increased 5%. “Reported earnings” means earnings calculated by standard accounting rules, adjusted earnings means earnings that are calculated a little differently. TD’s most recent quarter saw a lot of one-time gains due to its pending First Horizon buyout. These gains won’t occur in the future, so TD Bank included adjusted earnings that don’t include them.

TD benefits from rising interest rates, just like Bank of America does. The Bank of Canada is raising rates this year, so TD could see its interest income continue to rise.

In addition to the two stocks mentioned above, I own a number of funds and stocks that pay small dividends. The two names above account for the majority of my dividends, as they have the highest yields. I could be getting more dividend income than I’m actually getting, but I have chosen not to. Sometimes, non-dividend stocks offer great total returns.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Andrew Button has positions in Toronto-Dominion Bank and Bank of America. The Motley Fool recommends Bank of America. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

The 2 Best Canadian Blue-Chip Stocks to Buy Now

Blue-chip stocks can be some of the best stocks to have in any portfolio. But when they're trending upwards, investors…

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These top dividends stocks have consistently paid and increased their dividends. Further, this trend will continue.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »