The Motley Fool

How to Make $500 of Passive Income a Month in Your TFSA

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If you’re looking to make passive income from your investments, you might as well get it tax-free in your TFSA. While the Canadian market offers a yield of 2.75%, Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP) offers about 75% more in income — specifically, a yield of 4.8% as of writing.

Why Brookfield Infrastructure is awesome for passive income

Brookfield Infrastructure owns and operates a critical and diverse portfolio of global infrastructure assets, which facilitate the movement and storage of energy, water, freight, passengers, and data.

The company has a better than investment-grade S&P credit rating of BBB+. And it has been safely increasing its cash distribution over the long run. Since 2009, Brookfield Infrastructure has increased its cash distribution per unit at a compound annual growth rate (CAGR) of about 11%, while its funds from operations per unit increased at a CAGR of about 16%.

Before Brookfield Infrastructure was listed on the NYSE in 2008 and TSX in 2009, it was a part of Brookfield Asset Management (BAM), which also tends to increase its dividend.

Notably, BAM remains its general partner and manager with an equity stake of roughly 30% in the company. So, management’s interest is well aligned with that of unitholders, as it also receives juicy income from the stock.

dividend growth

With Brookfield Infrastructure, you can get a very stable and predictably growing passive income. Specifically, management aims to increase the cash distribution by 5-8% per year. Based on its usual dividend-hike schedule, the quality utility increased its dividend by 6.9% in the first quarter.

Assuming the midpoint growth rate of 6.5%, investors can expect to double their income from the stock in about 11 years (or get 20% more in income by the third year of investment).

How to make $500 of passive income a month

To get $500 per month (equating to $6,000 per year) of income from a yield of 4.8%, you need to invest $125,000. That’s investing a whole lot in a single stock in a lump sum.

A better way would be to diversify your tax-free passive-income stream, by getting, say, $100 per month from Brookfield Infrastructure. That’d imply an investment of $25,000. And then invest in four other safe dividend stocks for the remainder $400 per month.

Currently, Pembina offers a similar dividend yield as Brookfield Infrastructure, and in our view, it’s also a quality dividend-growth stock.

And this reliable REIT offers a whopping yield of 6.3%, which means you’ll only need to invest about $19,050 in the stock instead of $25,000 to generate $100 a month. However, to prevent foreign withholding taxes on some of its cash distribution, you’ll want to hold it in an RRSP or RRIF.

Foolish takeaway

While we aim for $500 of passive income per month, the exciting thing is that’s just the start. These quality companies are set to increase their dividends by at least 5% per year, which means in as little as four years, you’ll earn more than $600 of passive income per month. And the income will only increase from there!

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Fool contributor Kay Ng owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV, Brookfield Infrastructure Partners, and Pembina Pipeline. The Motley Fool owns shares of Brookfield Asset Management and BROOKFIELD ASSET MANAGEMENT INC. CL.A LV. Brookfield Infrastructure Partners is a recommendation of Stock Advisor Canada. Pembina is a recommendation of Dividend Investor Canada.

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