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Canadian investors are looking for ways to boost income to help offset the impact of high inflation. One popular investing strategy to achieve this goal is to own income-generating investments inside a Tax-Free Savings Account (TFSA).
TFSA limit
The TFSA limit will be $ 7,000 in 2024 compared to $6,500 in 2023. The government indexes the TFSA limit to inflation with increases made in increments of $500. Canadian residents who have qualified for the TFSA since its inception in 2009 now have as much as $88,000 in cumulative TFSA contribution space. This will increase to $95,000 in 2024.
All earnings generated inside a TFSA are tax-free and can go straight into your pocket. The Canada Revenue Agency (CRA) does not take a cut, and the income won’t count toward the net world income calculation the CRA uses to determine its Old Age Security (OAS) pension recovery tax. This is important for seniors who collect OAS and have taxable retirement income that puts them near or above the OAS clawback threshold. The number to watch is $86,912 for the 2023 income year. Every dollar above that amount triggers a 15-cent reduction in the OAS that will be paid in the July 2024 to June 2025 period.
Good investments for passive income
Canadian investors can take advantage of current rates on Guaranteed Investment Certificates (GICs) to reduce portfolio risk while still generating decent returns on savings. Non-cashable GICs from some Canada Deposit Insurance Corporation (CDIC) members are still above 5% for terms of one or two years at the time of writing.
Dividend stocks that fell through most of 2023 have rallied in recent weeks, but many remain arguably oversold and offer attractive dividend yields.
BCE
BCE (TSX:BCE) raised its dividend by at least 5% in each of the past 15 years. The stock dropped from $65 in May to as low as $50 in October. Bargain hunters have driven it back up to more than $54, but BCE still looks cheap.
High interest rates are pushing up borrowing costs. BCE uses debt to fund part of its capital program, and the jump in debt expenses is expected to hit profits a bit in 2023. The media group is also struggling with declining ad revenue for the television and radio platforms. However, BCE’s core internet and mobile subscription services continue to perform well. Investments in the 5G network and fibre optic lines should help drive long-term revenue growth.
Despite the challenging environment, BCE still expects revenue and free cash flow to be higher in 2023 than last year. That should support the dividend heading into 2024. At the current share price, investors can get a 7% yield from BCE stock.
The bottom line on TFSA passive income
BCE is just one example of a top TSX dividend stock that investors can buy right now to get a great dividend yield. It is quite easy to put together a diversified portfolio of GICs and high-yield dividend stocks to get an average return of 6% today. On a TFSA of just $20,000, this would generate $1,200 per year of tax-free income!
