Passive Income: How to Earn Nearly $500 Per Month in Your TFSA Portfolio

Canadians can leverage the benefits of the Tax-Free Savings Account (TFSA) and create a steady stream of recurring income this year. The maximum contribution limit for the TFSA has increased to $88,000 in 2023, which can be used to create a portfolio of dividend stocks.

Quality dividend stocks typically generate consistent profits across business cycles, allowing them to increase dividend payouts each year. The current market environment allows you to benefit from attractive dividend payouts, as you can buy undervalued stocks at a much lower multiple.

Several TSX dividend stocks also pay you a monthly dividend, making them ideal for income-seeking investors. Additionally, dividend income earned in a TFSA is exempt from Canada Revenue Agency taxes.

If you are looking to earn $500 in monthly dividends, or $6,000 in annual dividends, you need to buy stocks with an average yield of 6.8%. Here are three such high-yield dividend stocks that TFSA investors can buy in 2023. Please note that we at the Fool prefer a more diversified portfolio and don’t recommend putting such a large sum into only three stocks. Instead, we suggest you mix and match a diverse group of dividend-paying stocks to achieve your target yield. 

Pembina Pipeline stock

A Canada-based energy infrastructure company, Pembina Pipeline (TSX: PPL) offers you a dividend yield of 5.7%. The multi-billion-dollar energy giant operates several cash-generating assets, including pipelines, storage terminals, processing plants, and export facilities.

It enters into inflation-indexed, long-term and fixed-rate contracts with energy companies enabling Pembina Pipeline to earn a predictable stream of income.

While it is part of the highly cyclical energy sector, Pembina Pipeline has increased dividends at an annual rate of 4.9% annually in the last decade. It currently pays investors a monthly dividend of $0.218 per share.

The company has an extensive backlog of projects, which should result in widening cash flows and higher dividends in the future.

TransAlta Renewables stock

A Canadian company that’s part of the clean energy vertical, TransAlta Renewables (TSX: RNW) offers investors a forward yield of 7.9%. It owns and operates renewable as well as natural gas power generation facilities and infrastructure assets in Canada, Australia, and the United States. TransAlta Renewables operates a portfolio of 50 renewable power-generation facilities that include wind, hydro, and gas.

In 2022, it completed and executed contracts with all of its customers while reaching an agreement with BHP Nickel West to expand transmission systems at Mount Keith. TransAlta Renewables announced a 10-year contract extension with New Brunswick Power, where the two parties will also evaluate the installation of a battery storage system.

TransAlta pays investors a monthly dividend of $0.078 per share, and in the last 12 months, its adjusted earnings stood at $0.71 per share.

Boston Pizza Royalties Income Fund stock

The final monthly dividend stock on my list is Boston Pizza Royalties Income Fund (TSX: BPF.UN). This TSX stock pays investors a monthly dividend of $0.102 per share, translating to a tasty yield of 7.6%.

The company operates and franchises Boston Pizza restaurants in Canada, allowing the trust to earn revenue in the form of royalty income — a major portion of which is distributed to shareholders in the form of dividends. Trading at less than 12 times forward earnings, the TSX stock is attractively priced right now.

The Foolish takeaway

An investment of $88,000 distributed equally between the three TSX stocks will help investors earn $6,250 in annual dividends, indicating a monthly payout of $521. You can identify similar high dividend stocks and create a TFSA portfolio that generates income each month.