TFSA Investors: How to Earn on Average $373 Per Month Tax Free

The TFSA can be the perfect tool to create a passive-income stream, especially when combined with royalty stocks.

| 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

No matter the life stage, a Tax-Free Savings Account (TFSA) can be an excellent portfolio option. Whether it’s to put aside savings for your future retirement or pay for your child’s education in the next few years, the TFSA can create tax-free income for any part of your life.

However, it’s perhaps less about the future and more about right now. Investors continue to seek out dividend stocks for their TFSA to help offset rising costs and interest rates. But what if I told you that instead of putting a ton of cash in all at once, you could drip feed and create an immense amount of passive income each month tax free?

How it works

First off, investors need to have a TFSA for this option. If you want tax-free income that you can take out at any time, the TFSA is the way to go. While there are limits on contributing to your TFSA, you can take out everything at any time.

What investors will then want to do is create a budget. This will help identify how much money from your paycheque can be used for monthly investments. This should be contributed to your TFSA (while staying within your limits) every month, putting that cash aside until a stock on your watchlist is a good price.

Now, what kind of stock should you choose?

Consider a royalty stock

If you want cash every month, you’ll need a monthly, passive-income dividend stock. And some of the safest out there are royalty stocks.

Royalty stocks allow investors to collect revenue generated by a business or industry. While there are a lot of industries to choose from, consider The Keg Royalties Income Fund (TSX:KEG.UN) as a strong option. Restaurant royalty funds allow investors to invest in a company that holds ownership stakes in multiple restaurants and, in this case, the Keg chains.

The fund works by having restaurants agree to pay out a portion of revenue in exchange for investment capital. A port of that revenue will then be paid out to investors, usually in the form of dividends. In the case of the Keg fund, investors can bring in a 7.32% dividend yield as of writing!

How much you could receive

Let’s say you’re an investor who can afford to put $500 away each month. That’s $6,000 by the end of the year. You then invest that cash into the Keg on an annual basis, reinvesting your dividends as well. The Keg has grown its dividend by a compound annual growth rate (CAGR) of 1.73%. The share price has grown at a CAGR of 9.82% since 2020 after the company recovered from the crash during March 2020. So, let’s see how much investors could earn reinvesting over the next decade in this stock.

YearShare PriceShares OwnedAnnual Dividend Per ShareAnnual DividendAfter DRIP ValueAnnual ContributionYear End Stock PriceNew Shares PurchasedYear End Shares OwnedNew Balance
1$15.50387$1.14$441.18$6,439.68$6,000$17.02378.4765.4$12,880.05
2$17.02765.4$1.16$872.56$13,899.66$6,000$18.69367.711133.11$20,772.16
3$18.691133.11$1.18$1,337.06$22,109.23$6,000$20.53357.381490.49$29,446.24
4$20.531490.49$1.20$1,788.59$31,234.83$6,000$22.55345.391835.88$39,023.37
5$22.551835.88$1.22$2,239.77$41,263.14$6,000$24.76332.792168.67$49,503.02
6$24.762168.67$1.24$2,689.15$52,192.17$6,000$27.19319.572488.24$60,881.28
7$27.192488.24$1.26$3,135.18$64,016.46$6,000$29.86305.792794.04$73,147.35
8$29.862794.04$1.29$3,604.31$76,751.66$6,000$32.79292.93086.94$86,355.85
9$32.793086.94$1.31$4,043.89$90,399.74$6,000$36.01278.913365.85$100,443.29
10$36.013365.85$1.33$4,476.58$104,919.87$6,000$39.55264.893630.74$115,396.27

By year 10, you’ll receive $4,476.58 in passive income annually. This comes to about $373 each month! Plus, you’ll have gained strong returns from your investment, making it well worth the wait.

Should you invest $1,000 in The Keg Royalties Income Fund right now?

Before you buy stock in The Keg Royalties Income Fund, 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 The Keg Royalties Income Fund 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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

Dip Buyers Could Win Big in Today’s Market Dip

If you want to buy the dip, think long-term. Which is why this TSX stock is a top option.

Read more »

gaming, tech
Dividend Stocks

3 Top Communication Services Sector Stocks for Canadian Investors in 2025

Three communication services stocks are solid choices in 2025 if you want exposure to the rejuvenated sector.

Read more »

nugget gold
Dividend Stocks

Recession Stocks Are Back: Consider Buying the Dip This April

Recession stocks are back, and this one could be a solid winner.

Read more »

investor looks at volatility chart
Dividend Stocks

If You Have Cash on the Sidelines, Here’s Where to Invest in the Dip

If you have cash sitting on the sidelines, now may be the perfect time to put it to work in…

Read more »

Pumps await a car for fueling at a gas and diesel station.
Dividend Stocks

Where Will Alimentation Couche-Tard Stock Be in 3 Years?

Let's dive into why Alimentation Couche-Tard (TSX:ATD) remains a top value stock investors may want to consider buying and holding…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

TFSA Investors: 2 High-Yield Dividend Stocks With Growing Payouts to Buy Today

Add these two TSX dividend stocks to your self-directed investment portfolio for high-yielding, reliable, and growing quarterly dividends.

Read more »

bulb idea thinking
Dividend Stocks

Market Dip Gold Mine: Smart Money Moves Now

A market dip can be stressful, but it can also be a smart money opportunity.

Read more »

A bull and bear face off.
Dividend Stocks

Uncovering Bear Market Bargains by Buying the Dip Now

A bear market can be rough, and if there's one stock to consider, it should be this one.

Read more »