TFSA 101: Earn $250 Per Month Tax-Free

Investing in high-dividend stocks such as Alaris Equity and Exchange Income can help you earn $250 in tax-free income every month.

| 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

Canadian investors should consider buying and holding quality dividend stocks in a TFSA (Tax-Free Savings Account) to begin a recurring income stream at a low cost. Any income earned in the registered account is exempt from taxes, making dividend stocks an ideal investment as you can benefit from long-term capital gains and regular dividend income.

The cumulative TFSA contribution limit has increased to $95,000 in 2024. So, let’s see how much you need to invest to earn $250 per month tax-free by investing in these three dividend stocks.

Created with Highcharts 11.4.3Exchange Income + Alaris Equity Partners Income Trust + Decisive Dividend PriceZoom1M3M6MYTD1Y5Y10YALL30 Aug 202330 Aug 2024Zoom ▾Sep '23Nov '23Jan '24Mar '24May '24Jul '240www.fool.ca

Exchange Income stock

Valued at $2.3 billion by market cap, Exchange Income (TSX:EIF) offers you a tasty dividend yield of 5.4%, given its monthly dividend of $0.22 per share. In the last 10 years, Exchange Income stock has returned 368% to shareholders after adjusting for dividend reinvestments. Moreover, the TSX dividend stock trades 11% below all-time highs, allowing you to buy the dip.

Exchange Income operates in the aerospace manufacturing segment and reported revenue of $661 million in the second quarter (Q2) of 2024, up 5% year over year. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $157 million, up 7%, while free cash flow rose from $98 million to $101 million in the last 12 months.

Exchange Income’s payout ratio in the last 12 months has stood at 61%, which is not too high and provides the company with flexibility to target acquisitions and strengthen the balance sheet.

Priced at 12.5 times forward earnings, EIF stock is relatively cheap and trades at a 30% discount to consensus price target estimates.

Alaris Equity Partners stock

Alaris Equity Partners (TSX:AD.UN) is a small-cap stock offering a dividend yield of 8.2%. The company invests in private companies to meet the latter’s business and capital objectives, which include management buyouts, dividend recapitalization, growth, and acquisitions.

Basically, it provides alternative financing to profitable companies in exchange for distributions with the aim of generating stable cash flows, which are then paid to shareholders via dividends.

In the last six months, its net distributable cash flow rose 14% year over year to $55.2 million or $1.21 per share, indicating a payout ratio of 56%.

Decisive Dividend stock

The final dividend stock on the list is Decisive Dividend (TSXV:DE), which offers you a forward yield of 8.3%. Decisive Dividend uses a disciplined acquisition strategy to identify profitable, high-quality manufacturing companies with a sustainable competitive advantage and a focus on non-discretionary products.

While Decisive Dividend reported record operating performance in 2023, demand for its products manufactured by certain subsidiaries has declined amid a challenging macro environment.

In the last six months, Decisive Dividend’s sales and gross profits have fallen by 6% while its adjusted EBITDA narrowed by 27% year over year.

Its tepid performance has dragged shares lower by 18% in 2024. However, the stock trades at a 20% discount to consensus price target estimates.

The Foolish takeaway

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Exchange Income$49.34283$0.22$62.26Monthly
Alaris Equity Partners$16.54846$0.34$287.64Quarterly
Decisive Dividend$6.502,153$0.045$97Monthly

An investment of $42,000 distributed equally in the three stocks should help investors more than $3,000 per year in dividend income, translating to a monthly payout of over $250.

Should you invest $1,000 in Alaris Equity Partners right now?

Before you buy stock in Alaris Equity Partners, 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 Alaris Equity Partners 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 $21,058.57!*

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 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Decisive Dividend. The Motley Fool recommends Alaris Equity Partners Income Trust. The Motley Fool has a disclosure policy.

If You Thought Apple and Microsoft Were Big, You Need to Read This.

The steel industry produced the world's first $1 billion company in 1901, and it wasn't until 117 years later that technology giant Apple became the first-ever company to reach a $1 trillion valuation.

But what if I told you artificial intelligence (AI) is about to accelerate the pace of value creation? AI has the potential to produce several trillion-dollar companies in the future, and The Motley Fool is watching one very closely right now.

Don't fumble this potential wealth-building opportunity by navigating it alone. The Motley Fool has a proven track record of picking revolutionary growth stocks early, from Netflix to Amazon, so become a premium member today.

See the 'AI Supercycle' Stock

More on Dividend Stocks

Paper Canadian currency of various denominations
Dividend Stocks

6% Dividend Yield? Buy This Top-Notch Dividend Stock in Bulk!

This top-notch dividend stock offers a high and sustainable yield of about 6%, enabling you to generate resilient passive income.

Read more »

data analyze research
Dividend Stocks

2 High-Dividend TSX Stocks to Buy for Increasing Payouts

For big dividends with increasing payouts, look more closely at TD and CNQ today!

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

Better Dividend Stock: TD vs. BCE

TSX dividend stocks such as TD and BCE offer shareholders a tasty dividend yield. But which blue-chip stock is a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

Magna International: Buy, Sell, or Hold in 2025?

Magna International stock: A 5.5% dividend yield and a cheap 8.1 forward P/E – Can the automotive sector stock outrun…

Read more »

Senior uses a laptop computer
Dividend Stocks

Claiming a Home Office on Your 2024 Tax Return? Read This First

You may not be able to claim the home office tax credit, but you can claim the dividend tax credit…

Read more »

rail train
Dividend Stocks

Best Stock to Buy Right Now: CN Rail vs CP Rail?

Both these railway stocks have a strong future outlook, but which offers more value, and which more growth?

Read more »

Concept of multiple streams of income
Dividend Stocks

Here’s How Many Shares of Scotiabank You Should Own to Get $500 in Monthly Dividends

Scotiabank is a good income stock and it is reasonably valued today.

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

What to Know About Canadian National Railway Stock for 2025

CNR stock has long been a strong investment, but will that continue for 2025 with tariffs threatening growth?

Read more »