Canadians, particularly Tax-Free Savings Account (TFSA) users, look forward to January 1, 2025. While the annual limit is $7,000 or unchanged from 2024, expanded contribution room is always welcome news. Regular TFSA investors know that the key to earning the desired tax-free income is to maximize yearly contributions as much as possible.

The strategy should work best if the investments are in high-yield dividend stocks like PHX Energy Services (TSX:PHX) and Timbercreek Financial (TSX:TF). Assuming your available contribution room at the start of the year is $70,000, you can earn $6,000 in passive income annually with a $35,000 investment in each stock.

The table above approximates the potential dividend income on a combined investment of $70,000 in a TFSA. The dividend per share and total payout are annual. PHX Energy pays an 8.1% dividend, while Timbercreek Financial yields 9.1%. Note that both stocks trade at less than $10 per share.

Also, the example shows that earning the same amount is possible over time, most likely in 10 years, if the contribution limit and dividend yields remain constant. TFSA balances grow faster through dividend reinvesting, whether 4 (quarterly) or 12 (monthly) times a year.

Market-beating returns

Given its relatively low price and high yield, PHX Energy is a viable choice for income-focused investors. Moreover, the energy stock is up 26% year-to-date versus the sector's 13.1%-plus and the TSX's 22.3%-plus. The $435.8 million company provides horizontal and directional drilling services to oil and natural gas exploration and development companies in Canada, the U.S., and international markets.

In the first three quarters of 2024, earnings declined 38% year-over-year to $40.5 million, while cash flow from operating activities increased 32% to $79.2 million from a year ago. Management attributes the dip to weak natural gas prices. Nonetheless, PHX Energy expects to decrease operating risk, maximize operational efficiencies, and increase the bottom line in the coming quarters.

Bright outlook

Timbercreek Financial is among the few Canadian stocks paying monthly dividends. The best part this year is the steady performance. Current investors enjoy a 22.4% year-to-date gain despite a challenging environment and volatile real estate markets.

The $619.3 million non-bank lender provides shorter-duration (not more than five years) structured financing solutions to commercial real estate clients. In Q3 2024, net income declined 14.5% to $14.1 million versus Q3 2024. According to its CEO, Blair Tamblyn, Timbercreek generated stable cash flows, notwithstanding reduced transaction volume.

"The monthly dividend provides shareholders with an increasing spread versus instruments such as high-interest savings accounts and GICs in a decreasing rate environment," added Tamblyn. He expects the commercial real estate environment to stabilize and market conditions to strengthen with additional rate cuts.

Grow your contribution room

TFSA investors can withdraw funds in December to free up contribution room and grow their contribution limits by the same amount the following year. This withdrawal strategy could be an option for users with short-term financial goals.