Passive Income: How to Make $136.8 Per Month Tax-Free 

A tax-free passive income is not just for retirement. It can come in handy when inflation or mortgage payments eat up the household budget.

| More on:

Did you know a $10,000 investment today can earn you $136.8 per month in tax-free passive income, which comes to $1,642 a year? And this return window is short. Those who invest in a weak market prosper in a strong market. Follow three simple steps: open an account, invest, and forget. 

Three reasons to invest in this passive-income stock and forget 

Canada’s real estate market has been bolstered since 2010. Canadian property prices have more than doubled in the past few years. An economical way of investing in real estate is real estate investment trusts (REITs), and CT REIT (TSX:CRT.UN) has an attractive investment appeal. 

  • Firstly, it has only $2.77 billion in debt, with a weighted average maturity of six years (one of the longest in the industry). Its debt profile is much better than other REITs. 
  • Secondly, it has consistently reduced its distribution payout ratio from 88% in 2014 to 72.5% in the second quarter of 2023. The payout ratio reduced while distribution per share increased by over 3% annually.
  • Lastly, it used the money saved from a lower payout ratio to fund development and intensification projects that help it earn higher rent, allowing it to grow cash flow and distributions. 

CT REIT is more efficient than its peers because its biggest tenant is its parent Canadian Tire, contributing over 90% of rental income. The REIT accumulates some of the rent to buy stores owned by Canadian Tire and third parties and leases them to the retailer. It is like buying your parent’s house and leasing it to them. Your parents can show rent expenses, and you can show rental income. You can return this rental income to your parents as dividends.

The way Canadian Tire is reinvesting its rent to buy new properties under the CT REIT, you can also reinvest your distribution payouts tax-free and compound your returns. Let’s see how. 

How to earn $136.8 per month in passive income 

CT REIT stock trades at an average price of $16.5. However, high interest rates have pulled down the stock price of all REITs. CT REIT stock is oversold, creating an opportunity to buy this dividend stock for less than $13.5 a share and lock in a higher yield of 6.7%.

If you invest $10,000 in this stock while it trades at its low, you can get 741 shares. Do so with your Registered Retirement Savings Plan (RRSP), as it allows your investment to grow tax-free. The REIT’s distributions will be tax-free. You can reinvest the complete payout under the dividend-reinvestment plan (DRIP) offered by CT REIT and save on brokerage.

YearAnnual InvestmentCT REIT DRIP SharesCT REIT Share countCT REIT Dividend per share (3% CAGR)Total dividend
2024$10,000.00741.0741.0$0.90$666.90
2025$666.9040.0781.0$0.93$723.99
2026$723.9944.0825.0$0.95$787.72
2027$787.7248.0873.0$0.98$858.56
2028$858.5652.0925.0$1.01$936.99
2029$936.9957.0982.0$1.04$1,024.57
2030$1,024.5762.01044.0$1.07$1,121.93
2031$1,121.9368.01112.0$1.11$1,230.86
2032$1,230.8674.01186.0$1.14$1,352.15
2033$1,352.1582.01268.0$1.17$1,489.01
2034$1,489.0190.01358.0$1.21$1,642.53
How $10,000 investment in CT REIT DRIP will compound over the next 10 years. 

The 741 shares of CT REIT can earn you $667 in passive income by the end of 2024. However, it would be more than this as the $0.90 annual distribution is for July 2023 to June 2024. In the worst-case scenario, CT REIT might not grow distributions next year. Assuming you reinvest the payout annually to buy CT REIT shares at an average price of $16.5, your share count will grow to 1,358 and pay $1,642 in annual dividends. 

Investing tip

While this was about CT REIT, which gives monthly payouts, other dividend stocks pay quarterly dividends and even grow them at a higher rate. Consider diversifying your passive-income portfolio between stocks of different sectors to ensure you have passive income coming in at times of need. 

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 Puja Tayal 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.

More on Dividend Stocks

ETF stands for Exchange Traded Fund
Dividend Stocks

4 Passive Income ETFs to Buy and Hold Forever

These 4 funds are ideal for long-term investors seeking to simplify the process of investing in high-quality, dividend-paying companies while…

Read more »

sale discount best price
Dividend Stocks

2 Delectable Dividend Stocks Down up to 17% to Buy Immediately

These two dividend stocks may be down, but each are making some strong changes for today's investor.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

2 Top Canadian Dividend Stocks to Buy on a Pullback

These stocks deserve to be on your radar today.

Read more »

ways to boost income
Dividend Stocks

This 10.18% Dividend Stock Is My Pick for Immediate Income

This dividend stock offers an impressive dividend yield, but is that enough for investors to consider long term?

Read more »

Confused person shrugging
Dividend Stocks

Telus: Buy, Sell, or Hold in 2025?

Telus is down 20% in the past year. Is the stock now undervalued?

Read more »

Dividend Stocks

The CRA Is Watching: The Least-Known TFSA Red Flags

If you want to keep your TFSA growing, don't get the CRA on your back. Avoid these pitfalls, and invest…

Read more »

An investor uses a tablet
Dividend Stocks

BCE Stock: A Lukewarm Outlook for 2025

BCE Inc (TSX:BCE) stock has a tepid outlook for 2025.

Read more »

hand stacking money coins
Dividend Stocks

Invest $25,000 in 2 TSX Stocks, Create $1,363.84 in Passive Income

If you're looking for passive income, these two offer that and more while creating even more from returns.

Read more »