TFSA Investors: 2 Dividend Stocks for Instant Passive Income

Understanding Tax-Free Savings Account (TFSA) Investments

Investors using a Tax-Free Savings Account (TFSA) often seek steady passive income. With as little as $10,000 or even less, it's possible to create a mini-portfolio that generates income without active management. Two Canadian dividend stocks that stand out for TFSA investors are Parkland and TC Energy. Each offers unique income potential and different risk-reward dynamics, making them an attractive combination for those looking to build a passive-income stream.

Parkland: Fuel Distribution and Retail Exposure

Parkland is a fuel distributor and convenience store operator with a stock price near $38 as of writing. It offers a dividend yield of approximately 3.74%. In its latest earnings report, Parkland announced forward annual dividends of about $1.44 per share, which supports its income appeal. The company has shown strong earnings recovery as fuel demand rebounded, allowing it to generate cash flow that sustains its dividend payouts.

One of the key strengths of Parkland is its balanced exposure to both retail and fuel distribution. This mix can help it weather periods of slower growth. Its operations span Canada, the U.S., and select global markets. Investors have historically rewarded Parkland for its consistent dividend performance.

However, the company is sensitive to fluctuations in fuel prices and economic downturns. While rising oil prices can boost its margins, they may also reduce demand and increase costs. Despite a decline of around 30% from its peak, Parkland’s dividend has remained stable, showcasing resilience in challenging market conditions.

TC Energy: Pipeline Infrastructure and Contract-Driven Income

TC Energy operates pipelines and power systems across Canada, the U.S., and Mexico. As of writing, its stock trades near $64.75, offering a dividend yield of about 5.11%. In the first quarter of 2025, TC Energy reported comparable earnings of $0.95 per share, slightly lower than $1.02 a year ago. However, net income came in at $0.94 per share, and comparable EBITDA remained steady at $2.7 billion. The company maintains a quarterly dividend of $0.85 per share.

As a critical infrastructure provider, TC Energy benefits from long-term contracts and rate-regulated businesses. The company is also investing heavily in natural gas and nuclear projects, signaling potential future growth. However, it faces regulatory and environmental challenges, which could impact its earnings. Additionally, its debt-to-capital ratio and interest costs remain areas to monitor, especially if interest rates continue to rise.

A Winning Pair: Diversification and Income Potential

Combining Parkland and TC Energy in a TFSA can offer a balanced approach to passive income. Parkland brings retail resilience and fuel exposure, with growth tied to consumer habits and energy prices. On the other hand, TC Energy provides stable, contract-driven income with a higher yield. Together, they can complement each other, creating a diversified portfolio that mitigates risk.

For example, allocating $5,000 to each stock in a $10,000 TFSA could generate approximately $187 and $261 in annual dividends, totaling nearly $450 in passive income. This income is tax-free and deposited directly into the account, making it an appealing option for investors.

Reinvesting these dividends can further amplify returns. Even with conservative growth assumptions of 3% per year and unchanged dividends, the investment could grow by over 25% in a decade. For TFSA holders, this compounding effect combined with income can significantly enhance long-term returns.

Risks and Considerations

While both stocks offer strong income potential, they are not without risks. Fuel prices can fluctuate, impacting Parkland's profitability. TC Energy faces regulatory hurdles and project delays, which could affect its earnings. Additionally, rising interest rates could strain debt servicing costs for both companies. These factors highlight the importance of diversification across sectors to cushion against potential underperformance in one stock while the other remains stable.

Conclusion

In summary, Parkland and TC Energy provide a sensible blend for TFSA investors. One offers fuel-linked income with retail upside, while the other delivers stable contracts, larger-scale projects, and a higher yield. Both are established companies that pay real dividends and are priced attractively relative to their historical performance. For investors looking to start building a passive income stream, even with a modest investment of $10,000 or less, these stocks can serve as a solid foundation. Over time, reinvesting dividends and monitoring the portfolio can lead to meaningful growth.