Transform Your TFSA Into a Cash-Gushing Machine With Just $20,000

Canadians looking to build wealth have a powerful tool sitting right in front of them: the Tax-Free Savings Account (TFSA).

While many people park their TFSA contributions in low-yielding savings accounts, savvy investors use this registered account differently. Canadians should buy and hold dividend stocks that pay regular cash distributions, while allowing their principal to grow over time.

Every dollar of dividend income earned inside your TFSA is yours to keep. And if you pick the right stocks, those dividends tend to grow year after year.

The math works in your favour. A well-constructed portfolio of quality dividend payers can generate a 4% to 5% yield today. On a $20,000 investment, that’s between $800 and $1,000 in annual passive income to start, with room to grow as companies raise their payouts.

The trick is finding businesses with staying power, companies that print cash regardless of what’s happening in the broader economy. Two Canadian stalwarts stand out: goeasy (TSX:GSY) and Bank of Nova Scotia (TSX:BNS).

goeasy keeps delivering despite economic headwinds

goeasy operates in a space most banks ignore: lending to non-prime consumers who need credit but can’t get it from traditional sources.

The company ended the third quarter with record revenue of $440 million, up 15% from last year. Its loan portfolio reached $5.4 billion, up $336 million in just three months.

CEO Dan Rees highlighted something important during the earnings call. Despite persistent economic weakness, the business model holds up.

• Net charge-offs came in at 8.9%, actually down 30 basis points year-over-year.
• Late-stage delinquencies, those loans more than 90 days past due, held steady at 2.8%.
• The company funded just 11% of credit applications it received in Q3, maintaining strict underwriting standards even as demand surged.
• Average credit scores on new loans topped 624 for the 15th straight quarter.

The business generated $393 million in trailing-12-month free cash flow before growing its loan book. That means the non-prime lender could theoretically grow its loan portfolio by $350 million annually using only internal cash, without tapping debt markets.

The dividend currently yields around 4.5%, but the real story is growth. As the loan book expands and margins improve, expect that payout to climb. goeasy maintains a strong track record of dividend increases, supported by consistent earnings growth.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYGoeasy$102.1098$1.46$143QuarterlyBNS$129.0277$1.10$85Quarterly

Scotiabank sets up for double-digit earnings growth

Bank of Nova Scotia just wrapped up a stellar year, exceeding the targets CEO Scott Thomson laid out at Investor Day two years ago.

The bank delivered 10% earnings growth in fiscal 2025 while maintaining positive operating leverage. It repurchased 11 million shares, raising its CET1 (common-equity Tier 1) ratio to 13%. That’s a fortress balance sheet that gives management room to deploy capital aggressively.

Thomson’s guidance for 2026 signals even stronger performance ahead. He’s targeting double-digit earnings growth again, with the Canadian banking division leading the charge.

What’s driving that confidence? Three things.

• First, yield improvement. Both asset yields and deposit mix are moving in the bank’s favour. Scotiabank added $55 billion in new deposits since Investor Day, with day-to-day accounts up 11% in the retail bank.
• Second, productivity gains. The restructuring charge taken in Q4 will drive positive operating leverage this year. The bank reduced its workforce by 3,000 positions, mostly back-office roles, while reinvesting in frontline sales and technology.
• Third, fee income momentum. The bank posted 8% year-over-year growth in fee income, which is accelerating. Scotiabank climbed from sixth to second place in retail mutual fund sales, a massive shift that’s now generating serious revenue.

The international banking segment, long a concern for investors, is stabilizing. Thomson expects mid-single-digit pre-tax pre-provision growth with modest net income growth as credit conditions in Mexico and Chile normalize.

Global Banking and Markets just posted its best quarter ever, with return on equity jumping 300 basis points to 14% on 14% lower capital deployed.

Fee income surged 25% as the bank’s investments in CLOs (collateralized loan obligations), leveraged lending, and securitization paid off. The dividend yields approximately 4% today, one of the highest among Canada’s big banks.

With double-digit earnings growth on deck and a conservative payout ratio, that dividend looks sustainable and poised for increases.

The post Transform Your TFSA Into a Cash-Gushing Machine With Just $20,000 appeared first on The Motley Fool Canada.

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More reading

• The Best Canadian Stocks to Buy and Hold Forever in a TFSA
• 3 Canadian Dividend Stocks Perfect for Retirees
• These 2 Screaming Dividend Stock Buys Could Turn Your TFSA Into a Cash Machine
• The 2 Best TSX Stocks to Buy Before They Recover
• Trump Tariff Revival: 2 Bets to Help Your TFSA Ride Out the Storm

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Bank of Nova Scotia. The Motley Fool has a disclosure policy.