TFSA Investors: Generate $17 a day in Passive Income by Maximizing Contributions

Editor’s Note: The original version of this article stated that total contributions from 2009 through 2020 would total “roughly $70,500.” This has been corrected to state that total contributions would equal $69,500.

Sure, $17 doesn’t buy much. It’s probably the hourly income you earn on any given weekday or the amount you spend on an average meal for two. Yet being able to generate this amount tax free every day for an entire year could make an immense difference. 

Certainly, $17 a day or $6,205 a year could help you pay off a number of monthly mortgage payments, purchase a second-hand car or take your family on a nice holiday. Fortunately, since 2009, the government has made it a little easier for everyone to generate this amount passively. 

The Tax-Free Savings Account (TFSA) was introduced in 2009. If you had contributed the annual maximum every year since, then you would have $69,500 in total TFSA contributions (including the contribution for 2020).

That amount could be deployed in some reasonably sturdy dividend stocks to generate a tax-free passive income every year. Here are two examples of high-yield dividend stocks that can help you meet this target. 

Business loans

Small- and medium-sized businesses across the country have struggled to raise funds from traditional banks since the financial crisis. These entrepreneurs are usually willing to pay higher interest rates for their short-term business loans than most borrowers. 

Of course, you don’t have to seek out small businesses directly in order to gain exposure to this high-yield asset. Instead, you can invest in Calgary-based financial company Alaris Royalty Corp (TSX:AD).

The Alaris team has been deploying these loans since 2006. Now, the portfolio includes a wide range of companies across North America.

The team works with entrepreneurs to help them meet their funding needs and keep their business afloat or support new expansions without diluting their ownership stake in the company. In exchange, Alaris requests interest payments that range from 13% to 15% on these loans. 

As the company pays out most of its cash flow in the form of dividends, the stock’s yield is relatively high. It currently offers a 7.5% dividend yield, enough to generate little under $14.5 a day for any investor who has maxed out their TFSA contributions. 

Retail rental space

For investors seeking a higher yield, rental income from commercial property is a better option. Slate Retail (TSX:SRT.UN) is a real estate investment trust (REIT) that offers an 8.8% dividend yield at the moment.  

Further, 8.8% on a maxed-out $69,500 TFSA could yield $6,200 a year or $17 a day in tax-free passive income. 

Slate owns and manages 79 retail spaces that represent over 10.2 million square feet of retail space. Although the company is based in Toronto, its property portfolio is mainly located in the United States, which means the underlying assets are relatively less exposed to the Canadian economy, which is relatively riskier than the U.S.

The steady recovery in the U.S. economy is reflected in Slate’s dividends, which has been growing 3.4% on average every year since 2014.

The company has also been buying office space in the undervalued Alberta market in recent years. This makes Slate one of the most reliable high-yield dividend stocks listed on the TSX. 

Bottom line

By maximizing TFSA contributions and deploying your cash hoard in high-yield stocks like Alaris and Slate Retail, you can easily generate $17 a day in passive income.