The Motley Fool

How to Turn Your $69,500 TFSA Into a $475 a Month Tax-Free Income Stream

Come 2020, Canadians will have the opportunity to top up their TFSAs by another $6,000, bringing up the grand contribution total to $69,500 for those who were of age when the TFSA came to be in 2009.

Even if you’ve yet to contribute over a decade later, you still have the power to produce a tax-free income stream that can pay you an extra $500 every month, assuming you have $69,500 that’s sitting around losing purchasing power to inflation in some savings account.

It’s truly amazing what your TFSA can do with a bit of time. And it doesn’t matter if you’re a retiree who’s looking to have a little extra to spoil your grandkids or a 30-year-old millennial who’s looking for more income stability with all your part-time gigs, anybody can turn their TFSAs into a handsome tax-free income stream that’ll only become larger as the years go by.

This piece will have a look at two high-yield securities that can get you the big income without the excessive amounts of baggage that usually comes with those “artificially high yielders,” or securities whose yield is a lot higher than management intended due to significant share price depreciation.

As you may know, as shares go down, the yield goes up. And vice-versa. And if the yield gets too high, and the company under question is under significant financial pressure, the dividend (or distribution) could get reduced significantly, leaving yield-hungry investors holding the bag.

Without further ado, enter TransAlta Renewables (TSX:RNW), and Inovalis REIT (TSX:INO.UN), two of my favourite high-income securities that have well-supported payouts and are not under pressure, as their ridiculously high yield would imply.

TransAlta Renewables and Inovalis yield 6.8% and 8%, respectively, at the time of writing. Given shares of both firms have rallied of late, the yields have fallen slightly from where they were a few months ago. So, if you can bag either name on a dip, you could score an even larger yield for your TFSA income stream.

TransAlta Renewables is the “growthier” of the two plays and is a bet on renewable energy projects that include wind, hydro, and gas. In prior pieces, I’ve praised renewable energy firms for being able to balance a high upfront dividend and longer-term growth initiatives. The stable nature of the renewable energy business allows TransAlta to reward investors over the near and long term and is a stellar option for those who want the best of both worlds.

If you’re a younger investor, you may want to weigh TransAlta Renewables over Inovalis for the extra growth, unless you’re keen on getting a more significant raise today.

As for Inovalis REIT, it’s a rare breed indeed with an 8% yield and a share price that’s within 1% of hitting all-time highs. Rest assured, you’re not getting an artificially (or accidentally) high yielder with the name, as management intended on retaining a massive payout by design.

The REIT gives Canadian investors a front-row seat to the French and German office real estate markets, and with new funding in place, the relatively small REIT could have the potential to continue to beef up its AFFOs and distribution over the next five years.

Don’t expect frequent distribution raises, though, as its high payout standards make it tougher to sustain growth to support annual hikes. With an 8% yield upfront, however, you’re already getting a very generous amount that’s nearly unmatched from a risk/reward standpoint.

Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. Inovalis is a recommendation of Dividend Investor Canada.

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