Use a TFSA to Make $500 in Monthly Tax-Free Income

The world seems increasingly uncertain these days. The rise of artificial intelligence (AI) integration in daily lives is seeing jobs being displaced, a war in the Middle East is sending energy prices soaring, and general inflation is becoming worse. In times like these, it is crucial to have more than one income stream.

No matter how much you earn at your job, creating a passive-income stream is becoming important. It can provide better financial stability, help reduce the impact of inflation, and potentially make your retirement goals more achievable.

Reinvesting returns from your investments can accelerate long-term returns by unlocking the power of compounding. Investing in dividend stocks and building a portfolio of them in a Tax-Free Savings Account (TFSA) can work wonders to this end.

Creating a portfolio of monthly dividend-paying stocks and holding them in a TFSA can help you generate tax-free monthly returns. Here is a look at how $91,714 split between two monthly dividend stocks can generate around $500 per month in a TFSA.

TickerRecent PriceInvestmentDividends per Share (Monthly)Total Payout (Per Month)PZA$14.07$43,617$0.0775$240.25SRU.UN$28.46$48,097$0.15417$260.55Total Monthly Dividends$500.80

Let’s take a better look at these two investment opportunities to generate monthly and tax-free passive income.

Pizza Pizza Royalty

Pizza Pizza Royalty Corp. (TSX:PZA) is a $475.63 million market capitalization company that operates almost 800 locations under the Pizza Pizza and Pizza 73 brands. The company expects to grow its locations further, while upgrades to its digital ordering platform and operational improvements are expected to improve the company’s bottom line further.

Instead of handling operations itself, the company generates revenue through royalties from franchisee sales across all its locations. This way, the company shields itself from rising costs that the franchises themselves might face and continues generating stable and recurring income.

In turn, the company provides regular monthly distributions to its investors. Due to its business model, PZA stock can comfortably fund its $0.0775 monthly distributions per share, which translates to an annualized 6.61% dividend yield that you can lock into your self-directed investment portfolio today.

SmartCentres REIT

Earning rental income from investment properties can be a great way to generate monthly income, but the barrier to entry for becoming a landlord is typically high. Beyond that, there are countless hassles that come with being a landlord. However, real estate investment trusts (REITs) are investments that can let you earn monthly income without all the hassle that comes with being a landlord. To this end, SmartCentres REIT (TSX:SRU.UN) can be a good investment to consider.

The $5.07 billion market-cap trust is among the largest fully integrated REITs in the country. It has an extensive portfolio of mixed-use properties nationwide, generating recurring revenue through rental income, backed by a strong tenant base and high occupancy rates. With steady lease renewals, rising rental rates, and consistently high occupancy, it can comfortably fund its $0.15417-per-share monthly payments, translating to a roughly 6.50% annualized dividend yield.

Foolish takeaway

Before you invest, it’s important to remember that diversifying your investment capital across several high-quality monthly dividend stocks is a better way to use your money than investing in one or two stocks. If one or more stocks pause, slash, or outright suspend their monthly distributions, the returns from the rest can offset the potential losses.

PZA stock and SmartCentres REIT can be excellent foundations for a passive income-generating portfolio held in a TFSA. By reinvesting the dividends over a few years, you can accelerate your wealth growth to achieve your long-term financial goals faster.

The post Use a TFSA to Make $500 in Monthly Tax-Free Income appeared first on The Motley Fool Canada.

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More reading

• 5 TSX Stocks to Buy for a Calm, Boring, Winning Portfolio
• 2 High-Yield Dividend Stocks You Can Buy and Hold for a Decade
• How Investing $45,000 in This Dividend Stock Could Generate $248 a Month in Passive Income
• Transform Your TFSA Into a Cash-Generating Machine With $10,000
• A TFSA Stock Offering 6.5% Monthly Income That Looks Worth Considering Today

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