How to Create a Monthly Income Machine With Your TFSA

A monthly income machine inside a Tax-Free Savings Account (TFSA) sounds glamorous, but it runs on a few boring rules. You need a payout you can count on, cash flow that covers it, and a business that doesn’t rely on perfect markets to collect rent or fees. You also need to watch the trade-off between yield and safety, as the highest yield often flashes a warning sign. So let’s look at one offering it all up on a silver platter.

AP

Allied Properties REIT (TSX:AP.UN) offers a very specific flavour of monthly income. It owns and operates distinctive urban workspace in Canada’s major cities, with a focus on knowledge-based tenants that want amenity-rich, well-located space. The dividend stock doesn’t try to win the suburban office game. It leans into character buildings, mixed-use pockets, and a “people actually want to come here” approach that can stand out as office demand normalizes.

Operationally, Allied has not sat still. In Q3 2025, it reported occupied and leased area of 84% and 87.4%, and it leased 881,628 square feet in the quarter, including a notable renewal with Google at The Breithaupt Block in Kitchener. It also pushed non-core property sales and targeted more closings into 2026. Great news, as asset sales can help it pay down debt and calm the interest expense line that has annoyed investors.

Earnings support

Q3 2025 results show the office reality and the resilience in the model at the same time. Allied reported rental revenue of $147.9 million, up 0.9% year over year, but higher costs and higher interest expense pressured the bottom line. On a cash-flow basis, it reported funds from operations (FFO) per unit of $0.456 and adjusted FFO per unit of $0.423 for the quarter, and those figures dropped from $0.556 and $0.487 a year earlier.

The payout coverage also looked tight under the old distribution level. Allied reported an AFFO payout ratio of 106.4% in Q3 2025, which means the payout demanded more than the recurring cash flow delivered in that quarter. That does not automatically mean disaster, but it does mean the payout left no room for mistakes.

Looking ahead

The forward outlook depends on leasing momentum and debt work, not wishful thinking. In its Q3 materials, management said it expected occupied and leased area at year-end to stay in line with Q3 levels, with same-asset net operating income (NOI) down about 1% for 2025 and FFO and AFFO per unit contracting by about 10% for the year. That was largely due to the slower pace of lease finalization and higher interest cost. It also pointed to monetizing a loan receivable secured by 150 West Georgia in Vancouver, with the most likely closing window in the first half of 2026.

Yet there are notes for investors to consider. On Dec. 1, 2025, it announced a 60% reduction in the monthly distribution to $0.06 per unit, or $0.72 annualized, throughout 2026, and it tied that move directly to reducing indebtedness and interest expense. That cut can sting, but it can also extend the story, because it lowers cash leaving the business each month. The valuation looks more interesting after the drop, but you still need to respect the risks. The balance sheet remains the swing factor, though. Allied reported net debt to annualized adjusted EBITDA of 12.3 times at the end of Q3 2025 and a total debt ratio of 45%, so it still has work to do.

Bottom line

AP.UN can still play a strong role in a TFSA income plan as it pays monthly, it now runs with a reset distribution level, and management has put debt reduction front and centre. That combination can make the income feel more durable going forward, even if the yield no longer looks jaw-dropping. In fact, here’s what $7,000 could create on the TSX today in dividends alone.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENTAP.UN$14.40486$0.72$349.92Monthly$6,998.40

The trade-off comes with the office cycle, and you should expect bumps. If you want a monthly payer that can fund your TFSA plan without constant tinkering, AP.UN can fit, as long as you buy it with patience and realistic expectations.

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

• Got $14,000? Here’s How to Structure a TFSA for Lifelong Monthly Income
• This Monthly Paying TFSA Dividend Stock Yields 13% Right Now

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.