Do you want to get $1,000 each and every month in your Tax-Free Savings Account (TFSA)?
It’s not the easiest thing in the world to pull off. But it’s possible.
Currently, the maximum amount of money you can deposit into a TFSA is $75,500. That’s if you were at least 18 in 2009. With $75,000, you’d need a 15.9% dividend yield to get to $1,000 a month.
You could find such yields after a severe enough market crash. For example, in 1931, after the great crash of 1929, the average NYSE dividend yield climbed to 9.7%. In that kind of environment, you could probably find plenty of individual stocks yielding 15.9%. But you most likely aren’t hoping for a 1929-style market crash just to help you build up a 15.9% yield portfolio. You could buy one in such a scenario, but all of your investments from prior to the crash would be nearly worthless.
So, waiting for the next Great Depression is not the way to get to $1,000 a month in dividends. Fortunately, there is another way to make it happen–without waiting for doomsday. In this article, I’ll explore how it’s done.
Invest in dividend growth stocks
One way to get a $75,500 portfolio up to $1,000 a month in income is to invest in dividend growth stocks. While few stocks pay out 15.9% in income right now, they could do so given enough time. If you buy a stock at a 6% yield today and it grows its dividend by 10% a year, it will have a yield-on-cost of 12% in just 7.2 years. In 10 years, you’d be about where you need to be. And this kind of result does happen in the real world. For example, Warren Buffett enjoys a 60% yield-on-cost on the Coca-Cola position he began buying in the 1980s.
Contribute to your TFSA regularly
Another way to get your TFSA up to $1,000 a month is to contribute regularly. You can only deposit $75,500 max today, but that figure will be higher in the future. Typically the TFSA gains $6,000 in new contribution room each year. So, in another 10 years, we’ll be up to $135,500 in contribution room. With that much invested, you’d only need a 9% yield to get to $12,000 a year ($1,000 a month in dividends). While 9% is itself a high yield, it’s not as unrealistic as 15.9%. There are, for example, plenty of mortgage REITs out there yielding 9%.
Dividend stocks that pay monthly
Another essential ingredient for getting $1,000 in monthly TFSA income is having investments that pay monthly. Technically a stock paying dividends quarterly does not provide monthly income. It works out to the same amount at the end of the year, but not with the same frequency.
So you may want to look into monthly pay dividend stocks like Pembina Pipeline (TSX:PPL)(NYSE:PBA). These stocks pay out their income each and every month. PPL, for example, pays a $0.21 dividend monthly. That works out to $2.52 per year. With the current share price of $41.06, you get a 6.13% dividend yield — not quite enough to get you to $1,000 a month. But with 10 years of dividend increases, you could get there. And of course, you can always add $6,000 to your PPL position every year to boost your income.