Use Your TFSA And Earn $480.83 in Passive Income Every Month

If you want monthly income, here’s the best way to get it. With a top dividend stock that’s well supported for future dividend growth.

Amy Legate-Wolfe ❯

@amylegatewolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest.

Published August 16, 2024 4:40 pm EDT

Creating annual passive income through a Tax-Free Savings Account (TFSA) can be highly effective, especially when focused on dividend-paying stocks. For example, if an investor builds a TFSA portfolio worth $100,000 with an average dividend yield of 4%, they could generate approximately $4,000 in tax-free passive income annually!

By reinvesting these dividends and continuing to make maximum contributions, the portfolio could grow significantly over time. In fact, it could increase both the value of the account and the amount of annual income generated.

Why the TFSA?

The TFSA is like the superhero of investment accounts, especially when it comes to creating monthly passive income from dividend stocks. Why? Because any dividends you earn inside a TFSA are completely tax-free! That means more of those sweet dividends go straight into your pocket without Big Brother taking a cut. It’s a powerful tool that allows your investments to grow faster, thanks to the magic of compounding, all without worrying about the tax man knocking on your door.

Another reason the TFSA is fantastic for generating passive income is its flexibility. You can withdraw your money at any time, tax-free, and even re-contribute the same amount in the following year, all without losing any contribution room. So, if you need a little extra cash one month, you can dip into your TFSA without any penalties! Plus, as you build your portfolio of dividend-paying stocks, your monthly income can grow steadily, giving you more financial freedom and less stress about where your next dollar is coming from.

Finally, the TFSA is perfect for long-term planners who want to build a reliable income stream for the future. Since you’re not paying taxes on the growth or withdrawals, every dollar earned is yours to keep and reinvest. Over time, as your dividend stocks continue to pay out, you can watch your monthly income increase, potentially turning your TFSA into a powerhouse of passive income that supports your financial goals, whether that’s a comfortable retirement, a dream vacation, or just enjoying life with a little extra cushion in the bank.

One stock to consider

If you’re on the hunt for a stock that could be a solid addition to your portfolio, Primaris REIT (TSX:PMZ.UN) might just be the one to consider right now. With a market cap of $1.33 billion and an enterprise value of $2.76 billion, Primaris is undervalued when you consider its price-to-book (P/B) ratio of just 0.62. This means you’re getting access to assets worth far more than the current stock price suggests. Plus, with a trailing price-to-earnings (P/E) of 10.88, the stock is trading at a very reasonable multiple. So, it could be a great value buy.

What makes Primaris particularly appealing is its strong dividend yield of 6.09%, with a payout ratio of 65.57%. This indicates the company is not overextending itself to pay dividends, so you can likely count on those payments continuing to roll in. In fact, dividends can even increase! For income-focused investors, this is a huge plus. Plus, the company’s financial health is solid, with a high operating margin of 51.78% and a comfortable debt-to-equity ratio of 79.90%, making it a stable choice in a sometimes volatile market.

On top of that, Primaris is well-positioned for future growth. Its revenue has been climbing, with quarterly revenue growth of 25.10% year over year, and its funds from operations (FFO) per unit have also grown by 6.8%. With a strong asset base, low leverage, and increasing profitability, Primaris is not just about the steady income today. It’s also a play on future growth. So, if you’re looking for a stock that offers a blend of value, income, and growth potential, Primaris REIT could be the one to add to your watchlist.

Bottom line

So, how much could you earn in TFSA passive income? Let’s say, for example only, that you’ve invested your full TFSA into Primaris. Again, this is just an example, as you should certainly have a far more diversified portfolio.

Even so, here is what you could earn by putting that $95,000 into Primaris REIT.