How to Create a Monthly Income Machine With Your TFSA

The Tax-Free Savings Account (TFSA) has been a blessing since the account was introduced to Canadians in 2009. You can enjoy the returns from any qualifying holdings you have in a TFSA without incurring taxes on them. This means no taxes on interest income, capital gains, or dividends.

While you can use the account to hold cash and generate interest income, the low interest rates do not offer much in terms of returns you can potentially enjoy. A better way to use the TFSA contribution room you have available is to build a portfolio of high-quality stocks. If you want to boost your monthly income, creating a self-directed investment portfolio of monthly dividend-paying stocks can be an excellent strategy.

You can reinvest the dividends to accelerate your wealth growth through the power of compounding. Likewise, you can withdraw the income you generate in the account, and it will remain tax-free.

Compounding returns in a TFSA

When you’re building a TFSA portfolio, the returns your portfolio will generate might not be enough right from the get-go. Initially, it might be better to focus on building up the value of your portfolio and compound its value over time to generate substantial monthly returns. The more stocks you own, the greater the monthly returns will be. When you near retirement, even the smallest initial investment might turn out to provide substantial returns.

Investing in stocks that regularly increase payouts each year can help you compound your returns, as well as reinvest the dividends your holdings generate. This way, you get a growing income stream from your stocks, accelerating your wealth growth significantly by the time you need to use the extra income.

Steady and safe holdings for a TFSA

The key to success with a TFSA is choosing the right investments for your self-directed monthly income portfolio. To this end, Granite Industrial Real Estate Investment Trust (TSX:GRT.UN) can be a solid investment to consider.

Granite is a $5.23 billion market-cap REIT that engages in the acquisition, development, ownership, and management of industrial, warehouse, and logistics properties across Europe and North America. Investing in Granite Industrial REIT to own units of the trust means you can generate monthly returns from distributions that it pays investors each month.

As of this writing, Granite Industrial REIT trades for $86.34 per share and pays investors $0.2958 per month for each share they own. The more you invest, the greater the returns you can generate each month from Granite Industrial REIT.

Granite is a defensive investment due to its high-quality logistics and manufacturing properties across Canada, the U.S., and Europe. It boasts a low-risk balance sheet, high occupancy rates, and long-term leases. Combined with a modest and sustainable payout ratio and the fact that it has increased payouts for 15 consecutive years, makes it an attractive investment to consider.

Foolish takeaway

Granite Industrial REIT provides you with the opportunity to generate reliable monthly returns. Held within a TFSA, the shares can provide tax-free income that you can reinvest to compound the value of your investment over the long run. By identifying more high-quality monthly dividend stocks in a TFSA, you can create a sizeable portfolio that can help you fulfill your long-term financial goals.

The post How to Create a Monthly Income Machine With Your TFSA appeared first on The Motley Fool Canada.

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More reading

• 3 Stocks Every Long-Term Canadian Investor Should Consider
• How to Structure a TFSA With $14,000 for Lifelong Monthly Income
• Canadian Real Estate Stocks That Could Be Due for a Big 2026
• 3 TSX Dividend Stocks With Payout Ratios You Can Actually Trust
• 3 Top REITs to Buy for March

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Granite Real Estate Investment Trust. The Motley Fool has a disclosure policy.