Canadian retirees and other investors are searching for ways to boost their income to help offset the rising cost of living. One popular strategy to achieve this goal involves owning high-yield dividend stocks and Guaranteed Investment Certificates (GICs) inside a self-directed Tax-Free Savings Account (TFSA).
TFSA limit increase 2024
The TFSA limit is $7,000 in 2024. This is up from $6,500 in 2023 and will bring the cumulative maximum TFSA contribution room to $95,000 for anyone who has qualified since the government launched the TFSA in 2009.
Earnings generated inside the TFSA are not taxed, so investors can take out the full value of dividends, capital gains, or interest payments to help cover living expenses. Any amount removed during the year will open up equivalent new contribution space in the following calendar year. That’s convenient for investors who might have annual cash flow that is variable throughout the year.
Seniors who receive Old Age Security (OAS) don’t have to worry about TFSA income triggering the OAS clawback. This is important because the Canada Revenue Agency implements a pension recovery tax on OAS payments when net world income tops a minimum threshold. That amount is $90,997 for the 2024 income year. Every dollar of net world income above this level will result in a 15-cent reduction in the total OAS that is paid during the July 2024 to June 2025 period.
Good TFSA investments for passive income
As we head into 2024, investors can still find insured non-cashable GICs that pay 4% to 5% for terms of up to five years. GIC rates have come down in the past few months amid the plunge in bond yields, but GICs still offer attractive returns for a zero-risk investment. One thing to keep in mind, however, is that the invested capital is locked up for the term of the certificate.
Top TSX dividend stocks recovered through the fourth quarter (Q4) of 2023 after being hammered for most of the year. Investors who missed the bounce can still get high yields from some great Canadian dividend-growth companies. Owning dividend stocks comes with risk, as everyone has witnessed in recent years, but dividend increases boost returns on the original investment and good stocks usually recover from pullbacks. In addition, stocks can be sold at any time if there is an emergency need to use the money.
Enbridge
Enbridge (TSX:ENB) just raised the dividend by 3.1% for 2024. That’s the 29th consecutive annual increase to the distribution. At the time of writing, Enbridge stock provides a yield of 7.7%. The shares trade for close to $47.50 compared to $59 at the high point last year. ENB stock dipped as low as $43 in 2023.
The company is on track to hit its financial guidance for 2023 and expects to deliver decent results in 2024, supported by revenue growth from the ongoing $25 billion capital program and recent acquisitions.
Several other top TSX dividend-growth stocks still appear oversold and provide yields of 6-7% right now.
The bottom line on TFSA passive income
The right mix of GICs and high-yield dividend stocks depends on a person’s tolerance for risk, required returns, and required access to the invested funds. In the current market conditions, it is possible to put together a diversified portfolio of GICs and dividend stocks that would provide an average yield of 6%. This would generate $2,400 per year on a TFSA portfolio of just $40,000. That works out to an average of $200 per month!
