How to Create the Ultimate Passive-Income Portfolio — and Avoid Being Taxed on it

Canadian investors can build the ultimate passive-income portfolio in their TFSA with top stocks like Extendicare Inc. (TSX:EXE).

| More on:

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

There are many ways to generate passive income in Canada. Today, we are going to take a conventional approach and look to make passive income with some of the best income-yielding equities on the TSX. For this super passive-income portfolio, we are going to stash our stocks in a Tax-Free Savings Account (TFSA). That means that we will be able to avoid paying tax on the income and capital growth we gobble up in this portfolio. For our hypothetical, we are going to play with $42,000. That does not come close to the cumulative contribution room of $88,000 in a 2023 TFSA. Let’s jump in.

Here’s the first stock I’d snatch up to start the ultimate passive-income portfolio

Bird Construction (TSX:BDT) is the first dividend stock I’d target to kick off our TFSA passive-income portfolio. Shares of this dividend stock have dropped 4.8% month over month as of mid-morning trading on Tuesday, June 20. The stock is still up 3.3% so far in 2023.

This company released its 2023 first-quarter earnings on May 9. Construction revenue increased 12% year over year to $536 million. Moreover, adjusted earnings were reported at $5.3 million, or $0.10 per share — down from $6.5 million, or $0.12 per share, in the first quarter of fiscal 2022.

Shares of Bird Construction was trading at $8.35 per share on the morning of June 20. For our hypothetical, we can snatch up 1,650 shares of this dividend stock for a purchase price of $13,777.50. This stock offers a monthly distribution of $0.036 per share. That represents a strong 5.1% yield. Our investment will allow us to generate passive income of $59.40 per month in our TFSA.

This super REIT offers a massive monthly yield!

Northwest Healthcare REIT (TSX:NWH.UN) is a Toronto-based real estate investment trust (REIT) that owns and operates a global portfolio of high-quality healthcare real estate. This REIT has climbed marginally over the past month. Its shares have dropped 19% so far in 2023.

This REIT was trading at $7.68 per share on the morning of June 20. For our TFSA scenario, we can snag 1,850 shares of Northwest Healthcare REIT for a total price of $14,208. The REIT offers a monthly distribution of $0.067 per share, which represents a monster 10% yield. This will allow us to churn out tax-free passive income of $123.95 monthly.

Complete the ultimate passive-income portfolio with this monthly dividend beast

Extendicare (TSX:EXE) is the final dividend stock I’d look to snatch up to round out our super passive-income portfolio. This Markham-based company provides care and services for seniors across Canada. Shares of Extendicare have fallen marginally over the past month at the time of this writing. The stock has climbed 10% so far in 2023.

Created with Highcharts 11.4.3Extendicare PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Shares of this REIT were trading at $7.20 in late-morning trading on June 20. We can snag 1,945 shares of Extendicare for a purchase price of $14,004. This stock last paid out a monthly dividend of $0.04 per share, representing a tasty 6.6% yield. We can now generate monthly passive income of $77.80 in our TFSA.

Conclusion

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
BDT$8.351,650$0.036$59.40Monthly
NWH.UN$7.681,850$0.067$123.95Monthly
EXE$7.201,945$0.04$77.80Monthly

These investments will let us generate total monthly passive income of $261.15 in our TFSA. That works out to tax-free annual passive income of $3,133.80.

Should you invest $1,000 in Bird Construction Inc. right now?

Before you buy stock in Bird Construction Inc., 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 Bird Construction Inc. 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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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

dividend growth for passive income
Dividend Stocks

Why I’d Invest in Canadian Value Stocks for Both Stability and Growth

Three Canadian value stocks are buying opportunities for investors looking for stability and growth.

Read more »

investment research
Dividend Stocks

Got $15,000? 3 Blue-Chip Stocks Every Canadian Should Consider

Here's why investing in blue-chip TSX stocks such as CNQ and CNR should derive outsized gains in 2025 and beyond.

Read more »

protect, safe, trust
Dividend Stocks

Where I’d Allocate $20,000 in 2 Safer High-Yield Dividend Stocks for Retirement Needs

Here are two safer, high-yield dividend stocks I'm looking at for my retirement needs.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

monthly desk calendar
Dividend Stocks

A 9.2% Dividend Stock Paying Cash Every Single Month

With one of the highest dividends out there, this dividend stock deserves attention in your portfolio.

Read more »

Happy golf player walks the course
Dividend Stocks

Build a Powerful Passive Income Portfolio With Just $20,000

If you are worried that the bear market could reduce your savings, these stocks can build a powerful passive income…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Use My $7,000 TFSA Contribution to Start Retirement Planning

These TSX stocks have solid fundamentals and are well-positioned to deliver significant tax-free total returns over time.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With Only $10,000

It doesn't have to be complicated or scary. You can turn any portfolio into a major gold mine.

Read more »