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A TFSA (Tax Free Savings Account) is the best place to build a passive income account for retirement. All income in the account is tax-free. Likewise, if you need to withdraw money from the account, there is no tax implication.
By paying tax-free on investment income, you can keep as much as 10-15% more of your annual returns. So, a TFSA is definitely a smart place to start building a passive income stream for retirement. If you’re looking to earn $250 per month in retirement, it may not be as challenging as it sounds.
Build up to $60,000 to earn more than $250 per month in a TFSA
Currently, the TFSA allows for a total contribution of $88,000. That may not be available to many Canadian investors right away. However, say you start with only $30,000. If you contribute $500 to your TFSA every month, you’ll have a total of $60,000 in five years.
Many quality Canadian stocks are yielding around 5% today. If you can get that yield on $60,000, you can easily earn $265 of monthly passive income. If that sounds good, here are three stocks I would consider for a TFSA retirement plan.
Power reserve with a large share
Pembina Pipeline (TSX: PPL) currently has a dividend yield of 5.88%. With $20,000, you can buy 456 shares of Pembina Pipeline stock in your TFSA. With the stock paying a dividend of $0.6525 every quarter, the investor would earn $297.54 per quarter, or $99.18 a month.
While Pembina is considered a strong stock, around 85% of its earnings come from long-term contracts. That means that even if oil prices dip, your dividend is covered by your bond holdings.
Pembina provides a diverse range of energy infrastructure across Western Canada. Its Cedar LNG project is approved for construction by local regulators, so it can provide a meaningful long-term growth opportunity. For an infrastructure stock, the company has a good balance sheet, so it should be able to finance its growth plans without too much shareholder dilution.
Telecom stock is fairly priced
Another great TFSA product for dividends is TELUS (TSX:T). It’s earning a 5.3% dividend yield today. A $20,000 investment would buy 746 shares in TELUS. With the stock paying $0.35 a quarter, investors would earn $261.10 a quarter, or $87.03 a month on average.
TELUS is the leading telecommunications stock in Canada for several reasons. First, it has delivered the highest earnings and cash flow growth for the past several years. Second, it has a strong brand, large assets, and growing customer base.
Third, it has innovated into many digital vertical businesses that are driving growth. Fourth, the company has a great track record of growing its dividend by about 7% a year. All in all, TELUS is a great income product for a TFSA. Its value is reasonable today.
A solid foundation fund for a TFSA
Brookfield Infrastructure Partners (TSX: BIP.UN) is another good TFSA stock trading with a 4.75% dividend yield. You can buy 457 units of BIP stock with $20,000. That investment will earn $238.78 per quarter, or $79.59 monthly average.
If you want a stock with a diversified portfolio of defensive assets, this is the one to pick. Brookfield has everything from cell towers to pipelines to ports to utilities. These properties are very compact. A good portion of these assets bring earnings that have a growing inflation index.
The company has a strong balance sheet, so the recent stock market distress could present some very attractive buying opportunities. This TFSA product has a good history of growing its shares by 6-9% annually, so there is some good income ahead.
| Company | RECENT VALUE | NUMBER HAS BEEN SHARED | DIVISION | Total payment | BELIEF |
| Pembina Pipeline | 43.83 | 456 | $0.6525 | $297.45 | In a quarter |
| TELUS CORP. | 26.78 | 746 | $0.35 | $261.10 | In a quarter |
| Brookfield Infrastructure Partners | 43.76 | 457 | 0.5225 US dollars | $238.78 | In a quarter |
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