How to Use a TFSA to Earn $300 in Tax-Free Passive Income Each Month

Do you want passive income? How about making it tax free? That’s what investors can get from picking up this top dividend stock and a TFSA.

Amy Legate-Wolfe

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 September 10, 2024 9:00 pm EDT

| More on: NWH.UN

If Canadians maxed out their Tax-Free Savings Account (TFSA) contributions each year since 2009 and earned an average annual return of 5%, they would be sitting on a pretty nice nest egg by now. Starting with $5,000 in 2009 and adding the maximum contribution room each year (which has varied but totals $95,000 by 2024), they could have grown their investment to around $132,000 before this year! This assumes consistent contributions and compounding returns, making the TFSA a powerful tool for tax-free wealth building over time. It’s definitely a sweet deal!

But if you think it’s too late to get in on the action, think again. Today, let’s look at how to use your TFSA to earn more money than you can imagine.

What to watch

When it comes to picking passive-income stocks, investors should first look for companies with a solid history of paying and increasing dividends. Consistency is key here. Companies that have a track record of regularly paying dividends, even during economic downturns, are often the most reliable. It’s also worth checking out the dividend yield. But don’t get too dazzled by high numbers alone. A sustainable yield that a company can comfortably maintain (and hopefully grow) is more important than chasing the highest yield on the block.

Investors should also consider the financial health of the company. Look for strong cash flow, manageable debt levels, and a business model that can weather different economic conditions. Companies in stable, less cyclical industries, like utilities, consumer staples, and healthcare, often make good candidates for passive income. These tend to perform steadily over time. Lastly, diversification across sectors can help balance your portfolio and reduce risk. Thus ensuring that your passive income remains reliable and robust, even if one industry hits a rough patch.

Consider NorthWest REIT

NorthWest Healthcare Properties REIT (TSX:NWH.UN) could be a compelling option for investors seeking steady passive income and long-term growth. As a real estate investment trust (REIT) focused on healthcare real estate, it’s in a sector known for its stability and defensive characteristics.

Therefore, NorthWest offers a solid foundation in an essential industry that tends to perform well even in economic downturns. With a current forward annual dividend yield of 7.02% at writing, it provides attractive income potential, making it appealing for those looking to generate passive income. Additionally, the REIT’s portfolio boasts strong fundamentals, including a high occupancy rate of 96.5% and a long-term lease maturity profile. This adds a layer of security to its income streams.

Furthermore, NorthWest has been making strategic moves to strengthen its financial position, such as selling non-core assets and reducing debt. This should improve its balance sheet and potentially enhance future earnings.

The recent sale of its United Kingdom portfolio is a significant step in this direction, lowering leverage, and positioning the REIT for sustained growth. With a focus on high-quality properties in a sector supported by aging populations and increasing healthcare demand, NorthWest is well-positioned to deliver both stable income and potential capital appreciation, thus making it a strong option for those seeking reliable returns in their investment portfolio.

Bottom line

So, how much could you get from this top stock? Let’s say you used $50,000 to put toward NorthWest right now. Again, I am using this as an example only. Here’s what that could turn into through dividend income alone.