How to Use Just $20,000 to Turn Your TFSA Into a Reliable Cash-Generating Machine

If you have $20,000 sitting inside your Tax-Free Savings Account (TFSA) and you want it to start earning real money while you sleep, three Canadian dividend stocks deserve your attention right now: Enghouse Systems (TSX:ENGH), KP Tissue (TSX:KPT), and Diversified Royalty (TSX:DIV).

Together, they yield between 6.2% and 7.4%. Split your $20,000 evenly across all three, and you could be pulling in roughly $1,350 per year in completely tax-free passive income.

Why the TFSA is built for dividend investing

Most Canadians do not fully appreciate what the TFSA does for dividend investors. When you earn dividends inside a TFSA, the Canada Revenue Agency gets nothing, and every dollar paid out stays in your account to be reinvested or withdrawn as you please.

Reinvesting tax-free dividends into additional shares that then pay more dividends is one of the most reliable wealth-building TFSA strategies available to everyday Canadians.

Enghouse Systems is growing profitably

Enghouse Systems is a Canadian software company that acquires and operates businesses in niche markets, including contact centres, video conferencing, and network infrastructure. The TSX tech stock has raised its dividend for 18 consecutive years and currently offers a yield of over 7%.

In the first quarter (Q1) of 2026, the company generated $31.4 million in operating cash flow and ended the quarter with $260.2 million in cash and short-term investments.

In the March 2026 earnings call, CEO Stephen Sadler noted that the company is using artificial intelligence (AI) in practical ways, such as quality management tools, agent assist technology, and code development, rather than chasing hype. That measured approach has kept margins healthy while competitors struggle.

I think Enghouse is a deeply undervalued cash machine that income investors are overlooking.

KP Tissue is a recession-resistant stock

KP Tissue, the publicly traded vehicle for Kruger Products, makes tissue brands Canadians buy every week, including Cashmere, SpongeTowels, and Scotties.

In Q1 of 2026, KP Tissue reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $87 million, an increase of 14.6% year over year, on revenue of $544.6 million.

Its EBITDA margin improved by 210 basis points compared to last year, driven by lower pulp prices and better cost management.

The stock currently yields 6.62%. With a new converting line ramping up in Memphis and a state-of-the-art tissue plant planned for the Western United States by late 2028, KP Tissue has a clear path to growing its earnings base, which should translate to dividend hikes.

Diversified Royalty is a top dividend stock

Diversified Royalty is a lesser-known name, but one of the more interesting income plays on the TSX. The company collects royalties from franchise businesses across Canada, and its biggest partner is Mr. Lube and Tires.

In May 2026, Diversified announced the acquisition of the Mr. Lube and Tires franchisor business outright for $235 million.

Management estimates the combined business will generate approximately $58 million in adjusted EBITDA in the 12 months following closing, up from $46 million in 2025. Distributable cash per share is expected to rise roughly 11%, from $0.3128 to $0.3478.

The stock currently yields 6.6%, and with Mr. Lube posting average same-store sales growth of 7.25% over the past decade, the royalty stream backing that dividend is growing.

The math on a $20,000 TFSA investment

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYEnghouse$16.71399$0.31$123.69QuarterlyDiversified Royalty$4.311,546$0.024$37MonthlyKP Tissue$11.64573$0.18$103.14Quarterly

Split $20,000 equally across all three stocks, approximately $6,667 per position, and here is what your annual income picture looks like at current yields:

• Enghouse at 7.4%: roughly $495 per year
• KP Tissue at 6.2%: roughly $413 per year
• Diversified Royalty at 6.6%: roughly $445 per year

That adds up to approximately $1,353 per year in tax-free passive income from just $20,000.

The post How to Use Just $20,000 to Turn Your TFSA Into a Reliable Cash-Generating Machine appeared first on The Motley Fool Canada.

Should you invest $1,000 in Enghouse Systems right now?

Before you buy stock in Enghouse Systems, consider this:

The Motley Fool Canada team has identified what they believe are the top 10 TSX stocks for 2026… and Enghouse Systems wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 … if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have over $18,000!*

Now, it’s worth noting Stock Advisor Canada’s total average return is 94%* – a market-crushing outperformance compared to 85%* for the S&P/TSX Composite Index. Don’t miss out on our top 10 stocks, available when you join our mailing list!

Get the 10 stocks instantly #start_btn6 { background: #0e6d04 none repeat scroll 0 0; color: #fff; font-size: 1.2em; font-family: 'Montserrat', sans-serif; font-weight: 600; height: auto; line-height: 1.2em; margin: 30px 0; max-width: 350px; text-align: center; width: auto; box-shadow: 0 1px 0 rgba(0, 0, 0, 0.5), 0 1px 0 #fff inset, 0 0 2px rgba(0, 0, 0, 0.2); border-radius: 5px; } #start_btn6 a { color: #fff; display: block; padding: 20px; padding-right:1em; padding-left:1em; } #start_btn6 a:hover { background: #FFE300 none repeat scroll 0 0; color: #000; } @media (max-width: 480px) { div#start_btn6 { font-size:1.1em; max-width: 320px;} } margin_bottom_5 { margin-bottom:5px; } margin_top_10 { margin-top:10px; }

* Returns as of April 20th, 2026

More reading

• Beyond Telus: A High-Yield Stock Perfect for Income Lovers
• Missed Shopify? Here’s 1 TSX Stock With Similar Asymmetry
• The Best $10,000 TFSA Approach for Canadian Investors
• A Dependable Monthly Dividend Stock With a 6.6% Yield
• 2 High-Yield TSX Stocks Worth Buying if You Have $2,000 to Put to Work

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enghouse Systems. The Motley Fool has a disclosure policy.