The establishment of consistent passive income should serve as a goal for all Canadian investors. Indeed, most of us hope to be able to live off enough passive income when we eventually retire. Today, I want to discuss how Freehold Royalties (TSX:FRU) can help you earn $500 per month in passive income. To do that, you will need to make a sizable commitment to this TSX stock. However, this will pay off big time in the long term.
For this scenario, we are going to look to purchase the bulk of our shares in a Tax-Free Savings Account (TFSA). The cumulative contribution room in a TFSA, at least for those eligible to contribute since 2009, hit a whopping $88,000 in 2023 after the annual contribution rose to $6,500. That is a very solid starting point for those who are committed to generating tax-free passive income.
Here’s why this dividend stock is perfect for a passive-income investor
Freehold Royalties is a Calgary-based oil and gas royalty company that owns working interests in oil, natural gas, natural gas liquids, and potash properties in Western Canada and the United States. This TSX stock has consistently rewarded shareholders in recent years, making it a prime target for readers who are looking to generate passive income.
Shares of Freehold Royalties have increased 5% year over year as of close on March 3. The TSX stock has jumped 5.9% in the new year, fueling this year-over-year growth. Readers who want to see more of its recent performance can toggle the interactive price chart below.
This company released its fourth-quarter (Q4) and full year fiscal 2022 earnings on March 1, 2023. The quarter proved to be record setting, as Freehold reported funds from operations of $316 million in the first nine months of fiscal 2022 — up 67% compared to the prior year. Meanwhile, total production increased 19% to 14,101 barrels of oil equivalent per day (boe/d). Royalty and other revenue climbed 88% year over year to $393 million.
Let’s explore how we can generate $1,000 in monthly passive income in 2023
Freehold Royalties offers a monthly distribution of $0.09 per share. That represents a tasty 6.7% yield.
So, how can we hope to make $500/month in passive income? Freehold stock closed at $15.97 on Friday, March 3. We can snatch up 5,560 shares of this TSX stock for a purchase price of $88,793.20. That means we will be using up all our TFSA room plus a little more in a cash account. Regardless, the bulk of our monthly passive income will be entirely tax free.
That investment of 5,560 shares will allow us to generate monthly passive income of $500.40 going forward. This works out to annual income of $6,004.80. That will go a long way to helping your budget in an inflationary climate that is squeezing consumers in 2023.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| FRU | $15.97 | 5,560 | $0.09 | $500.40 | Monthly |
Bottom line
Freehold is a terrific dividend stock that also offers great value for readers in early March. It is worth noting that investors should not look to take up all their TFSA with one TSX stock. Instead, you should seek to diversify. Still, this hypothetical shows how you can make strong passive income every month and almost entirely tax free.
