By Puja Tayal at The Motley Fool Canada
In today’s world, artificial intelligence (AI) is threatening jobs, and inflation is eating up income. Relying on a single source of income is not enough. You need to build multiple sources of income, some that pay well now, some that will pay tomorrow, some that are reliable, and some that can give immediate liquidity.
Not using TFSA compounding is where most investors lose
You may think a simple way of earning a reliable passive income is to buy and hold a fundamentally strong dividend stock. This is where most investors make the mistake. Remember, a Tax-Free Savings Account (TFSA) allows your money to grow tax-free. It means dividend reinvestment, which attracts tax in a normal account, becomes tax-free.
This tax-free reinvestment of capital gains and dividend income from stocks can help you significantly compound your returns, with the right pairing of dividends.
There is a common debate on which is better, high yield or high dividend growth. The answer is high yield if you want higher passive income now and dividend growth if you want higher passive income later. But a hybrid approach can give you the best of both worlds.
Let’s understand this with an example.
The search for high yield for your TFSA
With the increasing popularity of dividend stocks, higher yields are gradually fading. Stocks like Telus and Timbercreek Financial are offering 11% yields, but their dividends are stressed with high leverage and rising credit risk.
Some opportunistic high-yield stocks, such as Freehold Royalties and Lundin Gold (TSX:LUG), are enjoying higher oil and gold prices. They can help you lock in 6.6% and 6.7% dividend yields, respectively.
The geopolitical tensions are fueling oil prices, and reducing dependence on the United States Treasury is driving demand for gold from the world’s central banks. Gold prices have seen a sharp correction over the past few months to a little above US$4,000/oz from over US$5,000/oz in March 2026. However, a new round of tariffs could trigger gold buying again and keep gold prices above US$4,000. This could help Lundin Gold pay its variable dividends from the surplus free cash flow after paying for the fixed dividend per share of $0.3.
Note that Lundin is an opportunistic dividend stock. When gold prices surge, you will also see its share price rally. At that time, you could consider selling the stock and use the proceeds to buy dividend growth stocks.
The next leg in reliable passive income
These opportunistic dividends and capital gains can be used to buy reliable dividend-growth stocks. Enbridge (TSX:ENB) tops the charts for reliability. A 30-year regular dividend growth history is no mean feat. During this time, two of the biggest oil shocks, the 2014 oil crisis and the 2020 pandemic, had a lasting impact on oil companies.
Enbridge used these episodes to expand in the natural gas space. It is now accelerating its gas pipeline development to connect the West Coast to the Woodfibre LNG plant. Moreover, it is building a power plant for Meta’s data centers. The fact that Enbridge absorbed these crises and still grew dividends shows how reliable an investment it is.
However, reliability comes at the cost of lower yields and growth rate. Enbridge has a dividend yield of slightly below 5% and dividend growth of 3%, which is likely to increase to 5% from next year. In 2027, more than $9 billion worth of projects under development will become operational and start earning revenue. The initial years could see high depreciation, but as cash flows reduce debt, they could be directed towards dividend payments. This creates scope for higher dividend growth in the long term.
The post How to Structure Your $14,000 TFSA for Reliable Passive Income appeared first on The Motley Fool Canada.
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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge, Freehold Royalties, Meta Platforms, and TELUS. The Motley Fool has a disclosure policy.
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