TFSA Investors: How to Earn $10,000 a Year With Just $100,000

You can receive $10,000 in dividends each year in your TFSA by buying stocks like RioCan Real Estate Investment Trust (TSX:REI.UN).

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If you have trouble making ends meet at the end of the month because your income is too low or your expenses are too high, you have two solutions: either increase your income or cut your expenses.

Cutting expenses is hard, and there comes a point where you can’t cut them more. And increasing your income by working more isn’t the best solution because it’s not good for your health. Plus, each additional dollar you earn is taxable.

A much easier way to earn more money is to buy dividend stocks in your Tax-Free Savings Account (TFSA).

With a TFSA of only $100,000, you can earn $10,000 in dividends tax-free by buying stocks with a dividend yield of 10%, receiving that money without lifting a finger. But you shouldn’t buy only one stock. Diversification is important to reduce your risk of losing money.

There are a few stocks on the TSX with a dividend yield turning around 10%. Chemtrade Logistics Income Fund (TSX:CHE.UN) and RioCan Real Estate Investment Trust (TSX:REI.UN) are particularly interesting, as they both have a dividend yield of about 10% and pay distributions every month.

Let’s have a look at these two high-yield stocks.

Chemtrade Logistics Income Fund

Chemtrade Logistics provides manufacturing and distribution services for industrial chemicals, including sulfur and performance chemicals, water solutions and specialty chemicals, and electrochemical. The stock is trading at about half its 52-week high of $11.71.

Chemtrade’s stock is structured like an income fund, which means you’ll receive a monthly dividend. By buying this stock in your TFSA, you’ll get a dividend each month that you can withdraw any time without being taxed on it. The chemical company has paid dividends consecutively for the past 18 years.

On March 11, Chemtrade slashed its distribution by 50%, from $0.10 to $0.05 per share. The dividend cut is a result of the company adapting to the current uncertainties of global economies.

Chemtrade intends to strengthen its balance sheet by reducing leverage in anticipation of further economic destabilization. It will likely hike its dividend when things stabilize. Despite the dividend cut, the forward dividend yield is still very high at 11%.

Chemtrade’s revenue is expected to drop by 5.3% in 2020 and then increase by 5% in 2021. Earnings are expected to decline by 15.70% in 2020 but should increase by 83.20% next year.

RioCan Real Estate Investment Trust

RioCan REIT is one of Canada’s largest REITs. Its portfolio consists of more than 200 properties focused on the country’s largest markets.

While RioCan initially targeted the commercial and retail sectors, it has turned to mixed-use residential properties in recent years. Its main tenants include major national retailers such as Canadian Tire, Walmart, Cineplex, Loblaw, and Metro.

RioCan’s shares have lost approximately 50% of their value from their 52-week high of $27.92. The forward dividend yield is now a whopping 10%. RioCan pays a monthly distribution of $0.12 per share. It’s best to buy this stock in a TFSA so you aren’t taxed on your dividends.

The dividend wasn’t cut despite the Covid-19 turmoil. RioCan CEO Ed Sonshine said that the distributions are safe. He also said that the current yield is probably the highest the company has ever traded at in history and that its portfolio is the best it’s ever been in history.

RioCan’s shares are cheap, with a P/E of only 6.8 versus a five-year average of 13.3.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Stephanie Bedard-Chateauneuf owns shares of Walmart Inc.

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