Home » Investing » 3 Generous Dividend Stocks for TFSA Passive Income
A passive-income stream is more than just about increasing the size of income coming into the household. If it’s from TFSA, it can also help you slightly reduce your total taxable income.
Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.
Latest posts by Adam Othman (see all)
2 AI Stocks to Turbocharge Your Savings - March 8, 2024
If Gold Prices Continue to Climb, These 3 Stocks Could Skyrocket - March 7, 2024
Should You Buy the 3 Highest-Paying Dividend Stocks in the TSX Composite? - March 7, 2024
Published
|More on: BTB.UNFSZRSI
The idea of deferring your taxes till you are retired and most likely in a lower income bracket is a financially smart one. That’s the premise behind RRSP; the most commonly used retirement savings account in Canada. And the TFSA, which you feed with the income you have already paid taxes on, gives you a different range of financially savvy options.
One of them is that you can start a tax-free passive-income stream to both augment your primary income and offset your total taxable income (by diverting more funds to the RRSP and getting a huge tax break). Three stocks that can help you with that are below.
The maple syrup king
Rogers Sugar (TSX:RSI), even though it has a relatively small market capitalization, has mostly been on the top of the food chain in its industry (refined sugar and maple syrup). The big fish in a small pond analogy is apt here. And this competitive advantage and no major competitors, at least in Canada, is what gives it decent financial stability.
This translates to reasonably safe dividends, though that’s not always reflected in the payout ratios. Rogers Sugar is also a household name. The valuation is just right for now, even though the stock is trading at a 5.9% premium to its pre-pandemic valuation. And the yield is a juicy 6.3% right now, which promises a monthly income of $52 with just $10,000 invested.
A REIT
REITs are dividend powerhouses when it comes to yield, though not so much when it comes to sustainability. One example is BTB REIT (TSX:BTB.UN), which slashed its payouts in 2020 by a significant margin. And though it doesn’t make the stockseem very credible from a dividend-sustainability perspective, it indicates a stock might be highly unlikely to slash its payouts again anytime soon.
The share price has leveled out at about 25% down from its pre-pandemic peak. The valuation is just right, and the yield, despite the slashed payouts, is quite attractive at 7.3%. At $10,000 invested, that’s about $61 a month in passive income. BTB is operating a portfolio with an asset value more than thrice its current market capitalization and has a decent tenant profile.
The chances of its income recovering enough to motivate the REIT to grow its dividends again are quite decent.
An asset management company
Fiera Capital (TSX:FSZ) has a strong international presence and a portfolio quite large for its size if we take its market capitalization as the “size of the company.” The assets under management are worth more than $180 billion, and what’s even more remarkable is the pace at which it has grown in the last 10 years.
The portfoliowas worth only about $29 billion in 2011. That’s 15 billion a year growth (if we spread it out evenly). As for revenue streams, the company makes most of its money from institutional markets and from its intermediary financial services (over 77%). Regionally, most revenue is domestic (56.6%).
The mouthwatering 7.6% yield, which can net over $63 a month with $10,000 invested, is a steal, even at its currently high valuation.
Foolish takeaway
With less than 50% of a fully stocked TFSA invested in the three dividend stocks, you can get a monthly income of about $176, completely tax-free. If you use that income for expenses while investing $2,000 more in your RRSP (assuming you haven’t already filled it to the brim), you can save somewhere between $850 and $600 in taxes (based on your original RRSP contributions), assuming you live in Ontario, with a yearly income of $100,000.
As concerns regarding delayed rate cuts amid looming geopolitical threats pile on, investing in dividend stocks might be the best move for investors seeking passive income. These investments not only provide a steady stream of income but also offer a cushion against market fluctuations.
U.S. stocks held in a TFSA are subject to 15% withholding tax on U.S. dividend income. Withholding tax would apply to other foreign stocks held in a TFSA, with rates starting at 15%, depending on the country. Only Canadian stocks are not subject to withholding tax on their dividends inside a TFSA.
Gross income from passive sources includes: Dividends, interest, and annuities. Royalties (including overriding royalties), whether measured by production or by gross or taxable income from the property.
Pfizer (NYSE: PFE), Ares Capital (NASDAQ: ARCC), and Realty Income (NYSE: O) are dividend-paying stocks that offer above-average yields. They stand out because there's also a good chance they can continue raising their payouts for many years to come.
If you're wondering how to invest $10,000 for passive income, REITs could be the answer. Government regulations require REITs to pay at least 90% of their taxable income as dividends to investors.
Here are three high-quality dividend stocks - Target Corporation (TGT), Republic Services, Inc. (RSG), and The Brink's Company (BCO) - that demonstrate steady earnings growth and generate ample free cash flow, ensuring their ability to sustain dividend distributions over the long term.
If you have cash to put to work in a TFSA and adequate contribution room available, allocating a portion of it to dividend stocks can be a terrific way to grow your money. Between the tax-free dividend income, capital gains, and possible compounded growth, you can be a much wealthier investor when you retire.
If your investment strategy focuses on growth stocks that do not pay dividends, such as Amazon, it could be a suitable choice for your TFSA. Ultimately, the decision to buy US stocks through a TFSA depends on your investment goals, risk tolerance, and understanding of the tax implications.
For non-dividend U.S. stocks, holding them in TFSA could be a smart choice. Like Canadian stocks, you won't pay a capital gains tax on U.S. stocks when you sell them for a gain. And unlike RRSPs, you won't pay taxes when you withdraw money from your TFSA before retirement.
There are two kinds of passive activities. Trade or business activities in which you don't materially participate during the year. Rental activities, even if you do materially participate in them, unless you're a real estate professional.
a) SIP in high-dividend yield stocks: Systematically invest in a basket of high-dividend yield stocks to steadily grow dividend income over time. b) Reinvest dividends: Reinvest dividend proceeds to purchase additional shares, compounding dividend income without additional investment.
Dividend investing can be a great investment strategy. Dividend stocks have historically outperformed the S&P 500 with less volatility. That's because dividend stocks provide two sources of return: regular income from dividend payments and capital appreciation of the stock price. This total return can add up over time.
A dividend is typically a cash payout for investors made quarterly but sometimes annually. Stocks and mutual funds that distribute dividends are generally on sound financial ground, but not always. Stocks that pay dividends typically provide stability to a portfolio but may not outperform high-quality growth stocks.
First, the income they provide can help investors meet liquidity needs. And second, dividend-focused investing has historically demonstrated the ability to help to lower volatility and buffer losses during market drawdowns.
However, if you are looking for a regular and stable income, then dividends might be a better option. On the other hand, if you are more interested in making short-term profits, capital gains might be a better choice. Ultimately, it comes down to your preferences and the type of company you invest in.
Address: Suite 447 3463 Marybelle Circles, New Marlin, AL 20765
Phone: +5816749283868
Job: Sales Executive
Hobby: Air sports, Sand art, Electronics, LARPing, Baseball, Book restoration, Puzzles
Introduction: My name is Jerrold Considine, I am a combative, cheerful, encouraging, happy, enthusiastic, funny, kind person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
