Are You Looking for a Lifetime of Tax-Free Income?

Love income? You’ll love the safe +8% yields offered by NorthWest Health Prop Real Est Inv Trust (TSX:NWH.UN) and another REIT.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tax-free savings accounts (TFSAs) and real estate investment trusts (REITs) are a powerful combination. You can invest in a TFSA, and the income and capital gains that you earn will be tax free. By investing REITs in a TFSA, you can generate a high yield from rent every month.

If you are a Canadian resident who was at least 18 years old in 2009 and you’ve never contributed to a TFSA, your contribution room would be $46,500 this year.

If you invested $46,500 for an 8% yield, you would generate a monthly income of $310, an annual income of $3,720. Comparatively, the best interest rate from a savings account is about 2.4%, and that’s a temporary deal.

Where can you get an 8% yield?

Here are two REITs that offer a yield of more than 8%.

Dream Global REIT (TSX:DRG.UN) yields 8.7% at $9.15 per unit. At the end of March, Dream Global had 13.5 million square feet of commercial real estate across 203 properties.

The REIT primarily owns and rents out office and mixed-used properties in the seven major office markets in Germany. It also entered the Austrian commercial real estate market last year.

High yield doesn’t come without risk. Based on its first-quarter diluted funds from operations (FFO) per unit, Dream Global’s payout ratio was 100%.

So, there’s no margin of safety for its 8.7% yield. However, 13% of unitholders participated in the dividend-reinvestment plan, which resulted in an actual payout ratio of 97%.

NorthWest Health Prop Real Est Inv Trust (TSX:NWH.UN) is an international healthcare REIT that offers a yield of 8.3% at $9.66 per unit.

At the end of the first quarter, it had 7.8 million square feet of high-quality healthcare real estate across 120 properties with a high occupancy rate of 96.1%.

It generates about 50% of its net operating income from Canada, 23% from Brazil, 19% from Australasia, and 8% from Germany. In terms of asset mix, it earns about 61% from medical office buildings and 39% from hospitals.

Compared to Dream Global, NorthWest’s yield is safer because in the first quarter, its adjusted FFO payout ratio was 92%. As well, it is more geographically diversified and is backed by a growing aging population.

Conclusion

Investing in a TFSA for a lifetime of tax-free income is a wonderful tactic. However, it should only be a part of a bigger strategy because REITs generally experience slower growth than other industries, such as technology.

If you also want growth in your portfolio, allocate resources in growth industries, and allocate, say, up to 20% of your portfolio in high-yield income vehicles such as REITs.

If you invest $5,000 in each of Dream Global and NorthWest today, you’ll earn an annual income of $850 for an 8.5% yield. All that income is tax free for a lifetime if you hold them in a TFSA!

Should you invest $1,000 in NorthWest Healthcare Properties right now?

Before you buy stock in NorthWest Healthcare Properties, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and NorthWest Healthcare Properties wasn’t one of them. The Top 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 $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of DREAM GLOBAL REIT and NORTHWEST HEALTHCARE PPTYS REIT UNITS.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 2 Top TSX Stocks With Decades of Dividend Growth

These stocks have great track records of delivering dividend growth in challenging economic conditions.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA: Invest $15,000 in This TSX Stock and Create $884 in Annual Passive Income

This TSX stock certainly has quite the long-term outlook -- one that could create passive income now and decades to…

Read more »

Dividend Stocks

Invest $20,000 in These REITs for Over $1,000 in Annual Passive Income

Are you looking for a boost in your passive income? Then consider these two REITs for your self-directed investment portfolio.

Read more »

Asset Management
Dividend Stocks

How I’d Allocate $10,000 in 2 Canadian Growth Stocks for the Long Run

Both growth stocks offer a compelling mix of income, growth, and value, and I believe they can outperform over the…

Read more »

grow money, wealth build
Dividend Stocks

2 Dividend-Growth Stocks to Buy on the Pullback

These stocks have increased their dividends annually for decades.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

BCE Stock Analysis: A Smart Choice for Potential Value and Income

BCE stock has slipped to its June 2009 level amid Trump tariff uncertainty and intensity. Does the sharp dip provide…

Read more »

Person slides down a stair handrail
Dividend Stocks

Should You Buy Cargojet Stock at $70?

Cargojet stock might be down, but don't let that scare you off. It's still a long-term opportunity.

Read more »

Middle aged man drinks coffee
Dividend Stocks

3 Monthly Dividend Stocks to Buy and Hold Forever

Add these three TSX dividend stocks to your self-directed portfolio for reliable monthly passive income.

Read more »