Investors who still have their $7,000 Tax-Free Savings Account (TFSA) limit available are wondering which TSX stock might still be good to buy for a self-directed portfolio focused on generating passive income.
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TFSA 101
The government created the TFSA in 2009 to give Canadians another vehicle for setting cash aside to meet financial goals. In 2024, the TFSA limit rose from $6,500 to $7,000. The TFSA limit in 2025 will again be another $7,000. This brings the cumulative maximum contribution room per person to $102,000.
TFSA limit increases are linked to inflation and occur in $500 increments.
Income earned inside the TFSA from qualifying investments is tax-free. This means the full value of dividends, interest, or capital gains can be reinvested or removed as income. Any withdrawal from a TFSA opens up equivalent new contribution room in the next calendar year in addition to the regular TFSA limit increase.
Top TFSA stocks for passive income
Investors seeking steady tax-free passive income in the TFSA should consider stocks that have good track records of dividend growth supported by rising revenue and cash flow.
Fortis (TSX:FTS) is a good example of a dividend stock that gives its investors more money every year. The board recently increased the dividend by 4.2%. This is the 51st consecutive year Fortis has raised the distribution.
Steady dividend hikes also tend to support share-price growth over the long haul, boosting the total return on the investment.
Fortis is working on a $26 billion capital program that will raise the rate base from $38.8 billion in 2024 to $53 billion in 2029. As the new assets go into service, Fortis expects cash flow to increase enough to support planned annual dividend increases of 4-6% over the next five years.
The company has other projects under consideration that could be added to the capital program to extend the dividend-growth outlook.
TC Energy (TSX:TRP) is another dividend stock to consider for passive income. The energy infrastructure giant has increased the dividend in each of the past 24 years. TC Energy is working on a capital program of about $6 billion per year over the medium term. In addition, it has reached mechanical completion on two large pipeline projects that are expected to go into commercial operation in 2025.
TC Energy completed the successful spin-off of its oil pipeline business in 2024 and has done a good job of monetizing non-core assets to reduce debt and shore up the balance sheet after its budget on the Coastal GasLink project more than doubled.
Looking ahead, the company’s extensive natural gas transmission and storage assets should benefit from anticipated demand growth for natural gas in the coming years as gas-fired power facilities are built to supply electricity to new artificial intelligence data centres.
The bottom line on top TSX dividend stocks
Fortis and TC Energy pay solid dividends that should continue to grow. If you have some cash to put to work in a self-directed TFSA targeting passive income, these stocks deserve to be on your radar.
