Passive Income: How to Make $2,500 Per Year Tax-Free

Quality TFSA dividend stocks such as Enbridge can help you earn a steady stream of passive income in 2024.

| More on:
calculate and analyze stock

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Canadian investors can consider using the Tax-Free Savings Account (TFSA) to create a passive stream of recurring income. As any income earned in the registered account is sheltered from Canada Revenue Agency taxes, the proceeds can either be withdrawn or reinvested to benefit from compounded gains over time.

Historically, fixed-income instruments or real estate investments have been used to create a passive-income stream. However, quality dividend stocks are gaining in popularity as investors can also benefit from long-term capital gains in addition to a regular stream of dividend income.

The TFSA was introduced in 2009, and the maximum cumulative contribution room available for investors rose to $95,000 in 2024. Alternatively, in 2023, the average TFSA held roughly $41,500.

So, for you to earn $2,500 per year on a $41,500 TFSA investment, dividend stocks have to yield more than 6%. Here are two quality TSX dividend stocks that can help you earn $2,500 per year.

Created with Highcharts 11.4.3Enbridge + Bank Of Montreal PriceZoom1M3M6MYTD1Y5Y10YALL14 Apr 201412 Apr 2024Zoom ▾20152016201720182019202020212022202320240www.fool.ca

Enbridge stock

Valued at $100 billion by market cap, Enbridge (TSX:ENB) pays shareholders an annual dividend of $3.66 per share, translating to a forward yield of 7.8%. An energy infrastructure giant, Enbridge has raised dividends by 10% annually on average in the last 29 years, showcasing the resiliency of its cash flows.

Unlike oil and gas producers, Enbridge’s cash flows and earnings are largely immune from fluctuations in oil prices. Instead, a majority of Enbridge’s EBITDA (earnings before interest, tax, depreciation, and amortization) is tied to long-term inflation-linked contracts, resulting in predictable cash flows across market cycles.

Its low-risk business model and cash visibility make Enbridge a top dividend stock to own in 2024, given its high forward yield. Moreover, the TSX giant expects earnings per share to grow between 4% and 6%, with distributable cash flow growth forecast at 3%, driven by organic growth and accretive acquisitions.

Last year, Enbridge also announced plans to acquire three natural gas utilities from Dominion Energy, which would create the largest gas utility business in North America in terms of gas delivery volume.

Enbridge stock trades at a discount of 12.2% to consensus price target estimates. After adjusting for its dividend payout, cumulative returns may be closer to 20% in the next 12 months.

Bank of Montreal stock

One of the largest financial institutions in Canada, Bank of Montreal (TSX:BMO) offers you a forward yield of 4.7%. Despite a challenging macro environment, BMO increased net income by $1.9 billion and adjusted earnings of $2.56 per share in the fiscal first quarter (Q1) of 2024 (ended in January) due to its diversified businesses and conservative lending approach.

BMO emphasized the environment has constrained revenue growth in market-sensitive businesses which was offset by the strength of its personal and commercial segments.

BMO continues to strengthen its capital position and ended Q1 with a common equity tier-one (CET1) ratio of 12.8%, up 30 basis points from the last quarter. The CET1 ratio compares a bank’s capital against its assets, and a higher ratio is favourable.

Priced at 11 times forward earnings, BMO stock is not too expensive and should gain momentum as market sentiment improves.

The Foolish takeaway

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Enbridge $47.07441$0.915$403Quarterly
Bank of Montreal$128.15161$1.51$243Quarterly

Investing a total of $41,500 distributed equally in these two TSX dividend stocks can help you earn $2,584 in annual dividends. You can further diversify your TFSA portfolio by identifying other quality dividend stocks that offer a tasty and growing yield.

Should you invest $1,000 in Royal Bank of Canada right now?

Before you buy stock in Royal Bank of Canada, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Royal Bank of Canada wasn’t one of them. The Top 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 $20,697.16!*

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 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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.

Fool contributor Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Dominion Energy and Enbridge. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Why I’d Add This Top TSX Dividend Stock to My TFSA During the Current Dip

The market is full of volatility right now. Fortunately, this top TSX dividend trades at a discount and pays a…

Read more »