TFSA Passive Income: How to Easily Earn $425/Month TAX FREE!

Earn passive income through your TFSA completely tax free! Here are three high-yielding dividend stocks that could easily earn $425/month.

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The Tax-Free Savings Account (TFSA) can become a passive-income compounding machine for Canadian investors. When you don’t have to pay any tax on investment income, you increase your returns by as much as 10-20% (depending on your tax bracket).

Earn 10-20% more passive income by investing through your TFSA

Over years, that extra 10-20% can be worth significantly more if it is given time to compound. That is why the TFSA is ideal for building a passive-income stream for the long term. Buy dividend stocks, earn income, buy more dividend stocks, and earn even more income. It’s a great recipe for compounding wealth.

Fortunately, many high-quality dividend stocks have recently become cheap and dividend yields are elevated. It is a great time to start building a passive-income portfolio.

Here is one hypothetical portfolio that could generate as much as $425 of tax-free monthly income. Foolish investors would be best served having a significantly more diversified portfolio (+10 stocks) than this. However, this is to demonstrate the attractive monthly income a TFSA can earn right now.

Pembina Pipeline

Pembina Pipeline (TSX:PPL)(NYSE:PBA) is a leading energy infrastructure company in Western Canada. While its stock is up 10% this year, it has fallen by 13% in the past month.

This is a solid stock for passive income, because over 85% of its revenues are contracted. When energy prices are high (like they are right now), it gets to earn a higher margin on the energy products it processes and re-sells. It just had a record first half of 2022.

It just increased its dividend 3.5%. Its stock has a 6.15% dividend yield today. If you put one-third of your TFSA capacity ($27,166) into Pembina shares at today’s price of $42.15, you could buy around 644 shares. That would earn you close to $139 of tax-free monthly dividends.

NorthWest Healthcare Properties REIT

NorthWest Healthcare Properties REIT (TSX:NWH.UN) is a Toronto-based real estate investment trust that operates hospital and medical properties around the globe. Its stock is down 24% this year.

Healthcare properties are incredibly consistent assets for passive income. NorthWest’s portfolio has very long-term leases (+14 years) and high-grade tenants (many government or government-backed tenants).

NorthWest trades with a 7.2% distribution yield today. If you put $27,166 of your TFSA into NorthWest stock, you could buy 2,650 units with a price of $10.25. That would earn $163 of tax-free monthly distributions.

Algonquin Power

Another very attractive passive-income stock is Algonquin Power and Utilities (TSX:AQN)(NYSE:AQN). This Oakville-based company operates regulated utilities and renewable power assets across North America.

Its stock is down 16% this year. The company is looking to complete a large utility acquisition in Kentucky. However, the process is taking longer than expected and the stock has recently been marked down. For the long term, the company has a very large capital plan that should drive solid earnings and dividend growth ahead.

Algonquin trades with a 5.6% dividend yield today. If you put another third of your TFSA portfolio into Algonquin stock, you could acquire 1,777 shares with a price of $15.28. That would make $380 every quarter, or $126 averaged monthly.

The takeaway on TFSA passive income

The recent market dip is presenting great opportunities to buy high-yielding dividend stocks for passive income. Put a diversified mix of dividend stocks in your TFSA, earn income, and re-invest it. This tax-free passive-income stream could one day sustain your lifestyle long into retirement.

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 Robin Brown has positions in Algonquin Power & Utilities Corp. The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS and PEMBINA PIPELINE CORPORATION. The Motley Fool has a disclosure policy.

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