Use a TFSA to Earn $474 Per Month in Tax-Free Income

A Tax-Free Savings Account (TFSA) is a great way to create monthly income, if not the best way. It lets you keep every dollar of your distributions without tax drag. When you hold a monthly payer inside a TFSA, the cash can land in your account like a paycheque, and you can either spend it or reinvest it right away. The bigger win is compounding.

Reinvested monthly income inside a TFSA can quietly snowball over time, and withdrawals stay tax-free, which keeps your retirement planning cleaner. So, let’s look at one dividend stock that could help create ample income inside a TFSA.

FC

Firm Capital Mortgage Investment (TSX:FC) is a mortgage investment company. It earns income by investing in a diversified pool of residential and commercial real estate loans through its mortgage lender partner. The stock targets niches that big banks often ignore, which can support higher interest rates on its loans and, in turn, higher income for shareholders. It also runs dividend-reinvestment features that make it easy to compound, including a dividend-reinvestment plan (DRIP) that can automatically turn monthly dividends into more shares.

On recent performance, FC has looked more like an income grinder than a momentum stock. Over the past year, it has delivered a modest total return, but the longer view looks more encouraging. It held a much stronger three-year return that reflects how powerful a steady payer can be when income stays consistent.

Into earnings

Earnings support this consistency. In its most recent earnings release, the company reported third-quarter (Q3) 2025 net income of about $9.1 million, up slightly from the prior year, which points to a fairly steady earnings engine. Earnings per share (EPS) came in at $0.247 for the quarter, while distributions totalled $0.234 per share, showing that earnings covered the payout in that period.

On a year-to-date basis, it reported net income of about $28.7 million, up more than 10% from the same period in 2024, and management said income exceeded distributions by roughly $2.95 million, or $0.08 per share. The mortgage portfolio sat at around $627 million, and it remained heavily weighted to conventional first mortgages. This tends to be viewed as a more conservative part of the mortgage world than riskier structures. The portfolio’s average face interest rate was 9.61% per year, and that helps explain how it supports an income-forward model.

Looking ahead

Overall, FC can be a strong option for TFSA tax-free income as it pays dividends monthly and the yield sits in high-yield territory. This can turn a contribution into noticeable cash flow without waiting a full quarter. At writing, its annual dividend is about $0.94 per share, an 8.1% dividend yield. In a TFSA, that monthly stream can compound faster if you reinvest, and the company’s DRIP structure makes that process frictionless for investors who want to set it and forget it.

The flip side is that you should treat FC as an income tool that needs monitoring, not a sleep-at-night utility. The payout ratio screen is on the higher side but manageable. In the Q3 2025 report, the allowance for expected credit losses and fair value adjustments increased versus the year-end. This is not automatically a crisis, but it is something you should track as it can pressure future earnings and dividend comfort.

Bottom line

If you are building a TFSA plan around monthly income, the practical goal is to blend reliability with resilience. FC can pull its weight as the higher-yield monthly payer that makes your account feel productive right away, especially if you reinvest and let the compounding do the work. Right now, a $70,000 investment could bring in $5,687 annually, or about $474 monthly.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENTFC$11.576,050$0.94$5,687.00Monthly$69,998.50

Just make sure you balance it with steadier holdings so one credit cycle does not derail your income plan. The best retirement-style TFSA is the one that keeps paying you through good markets and messy ones, without forcing you into stressful decisions.

The post Use a TFSA to Earn $474 Per Month in Tax-Free Income appeared first on The Motley Fool Canada.

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More reading

• Invest $18,000 in These Dividend Stocks for $1,377 in Passive Income
• TFSA Investors: How to Structure a $75,000 Portfolio for Monthly Income
• What’s the Average TFSA Balance for a 72-Year-Old in Canada?

Fool contributor Amy Legate-Wolfe 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.