Tax-Free Savings Account (TFSA) contributions can’t be deducted from taxable income for tax-saving purposes. Nonetheless, TFSA framers intended the registered account to be simple and more flexible compared to the older Registered Retirement Savings Plan (RRSP). Users pay zero taxes on capital gains, dividends, or interest earned from qualified investments.

Today, the TFSA is not only the ultimate investment vehicle for Canadians 18 years or older but also an efficient retirement savings tool. Most TFSA investors prefer to hold dividend stocks to take advantage of the tax-free money growth (and tax-free withdrawal) feature.

Besides enhancing investment returns through the power of compounding, dividend stocks support wealth accumulation or the buildup of retirement savings. TFSA users can select from various dividend-paying Canadian stocks. However, a pure dividend play can ignite your TFSA retirement savings further in 2025 and beyond.   

High-yield AI stock

Artificial intelligence, or AI, is the in-thing, if not the most desirable technology today. However, for income-focused Canadian investors, AI is the ticker symbol for Atrium Mortgage Investment Corporation (TSX:AI). The $561 million company is one of Canada’s largest non-bank lenders.

Atrium MIC provides financing solutions to real estate and development clients. In addition to residential mortgages, it offers land and development financing, and construction and mezzanine financing, as well as commercial term and bridge financing.

AI is TFSA and RRSP eligible. The current share price is $11.73 (+12.9% year-to-date), while the dividend offer is a hefty 7.9%. Since the payment frequency is monthly, a $7,000 investment will produce $46.30 monthly. Assuming your available TFSA contribution room is $35,000, your money will generate $230.13 in tax-free monthly income.

Solid earnings and a low-risk portfolio

Atrium MIC’s defensive lending strategy enables the company to maintain its track record of consistent earnings and dividends. According to its CEO, Rob Goodall, Atrium continues to generate earnings per share (EPS) well above the dividend. “We are focused on preserving a low-risk profile for the overall portfolio by maintaining a conservative portfolio loan-to-value ratio and a very high percentage of conventional mortgages,” he added.

In the first half of 2025 (six months ending June 30, 2025), net and comprehensive income increased 6.1% year-over-year to $25 million. Notably, 96.8% of the total portfolio consists of first mortgages, with a loan-to-value ratio of less than 75% for 94.8% of the loans. Goodall said Atrium remains disciplined in its underwriting, given the weak real estate market and a stagnant economy.

A successful strategy is to lend in major metropolitan areas (British Columbia and Ontario) where the stability and liquidity of real estate are at the highest levels. The mortgage terms are generally not longer than 10 years.

Added bonus

Atrium’s defensive lending approach supports its consistent earnings and dividend record. MICs don’t pay income taxes if they distribute all their yearly taxable income.

TFSA investors can benefit from special dividends that can boost retirement savings. Atrium has declared them every year since 2013. This is the best income-generating deal on the TSX.