How to Earn $500 in Tax-Free Monthly Passive Income

A $500 monthly investment with a 5% yield can help you build a passive income portfolio that pays $500/month.

| More on:
clock time

Image source: Getty Images

Every income source has risk, whether a business, freelancing gig, or salaried job. So why not build a pipeline of alternate income while you still have a working income? Dividend stocks and interest-paying deposits are good ways to earn passive income. 

  • You can collect dividend income, reinvest it in different stocks, and build a portfolio with an overall dividend yield greater than 5%. Or you can invest in a growth stock. These fast revenue growers will help you build a diversified portfolio and enhance your chances of return in every market. But this method needs your active participation in stock trading.
  • Another method is to automate this process by investing in a dividend reinvestment plan (DRIP). You can save on brokerage costs and get the benefit of dollar-cost averaging. The drawback is a lack of diversification, and the company might stop the DRIP. 

Two stocks with over a 5% yield to earn passive income 

Both methods have their pros and cons. You can get the best of both while diversifying your portfolio into uncorrelated sectors by investing in the below stocks.

TC Energy stock 

TC Energy (TSX:TRP) is a Canadian oil and gas pipeline company that enjoys regular cash flows from toll money. Oil volume and price, oil spills from its pipelines, and delays in pipeline construction are some factors that impact the stock.

In early December, its Keystone Pipeline project had a major leak that pulled down the stock price by almost 9% and inflated its dividend yield to 7%. Then, delays in its Coastal GasLink pipeline project increased the project cost. Despite these challenges, the company expects its 2023 earnings to be higher than 2022. 

TC Energy based its guidance on upcoming projects that would commence operations in 2023. It also considered the long-term debt and higher floating rate interest, depreciation of assets, and lower contribution of Keystone. The company has been growing dividends for 22 years and could continue growing for over a decade. The company has a DRIP that can help you buy more TC Energy stocks. 


Diversifying into different sectors, CT REIT (TSX:CRT.UN) can give you exposure to retail real estate. It has no correlation to energy prices or global politics but is sensitive to property prices and borrowing costs.

CT REIT is the real estate arm of Canadian Tire, which has a resilient business, given its size. While the retailer’s stock is resilient, that of the REIT is falling as weakness in property prices has lowered the fair value of its property investments. 

However, CT REIT is relatively more stable than other commercial and retail REITs as 91.5% of its rent comes from Canadian Tire-occupied properties. Even if the retail industry is weak and occupancy is drying up due to shop closures, CT REIT has a better occupancy ratio. However, its biggest risk is too much dependence on Canadian Tire. If the parent goes into trouble, the REIT’s stock price could fall. 

As the recession engulfed the stock market, CT REIT stock slumped more than 5% in less than 10 days, inflating the distribution yield to 5.48%. Now is a good time to lock in a higher distribution yield.

Creating a $500 passive income

YearContributionDividends (5% yield)Total Amount
2023$6,000.0 $6,000.0
2037 $5,879.6 
How to earn $500/month in passive income by investing $500/month

To earn $500/month in passive income, you can invest $500/month in stocks with a 5% average dividend yield and reinvest the same. Making this a habit can help you reach the $5,890 annual dividend, or $490/month, by 2037. You can accelerate this journey in the recession by investing more through the market crash. This way you can lock in higher yields and benefit from a rebound rally. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A worker uses a double monitor computer screen in an office.
Dividend Stocks

2 of the Best Canadian Stocks That Pay Out Monthly

These two Canadian dividend stocks are some of the best to buy, offering yields upwards of 5.4% and returning cash…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Passive-Income Seekers: 4 Safe Dividend Stocks to Own Beyond 2033

Dividend stocks are great, but only if they continue to perform after downturns as well. In the case of these…

Read more »

clock time
Dividend Stocks

How Investors Can Build a $1 Million Portfolio in 12 Years

If you can handle it, you can certainly create a million-dollar portfolio in just 12 years, especially considering this dividend…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

4 Big Dividend-Paying Stocks for 2023

These four stocks all earn strong cash flow and offer attractive dividend yields, making them some of the best to…

Read more »

grow dividends
Dividend Stocks

This 7.5 Percent Dividend Stock Pays Cash Every Month

If you need cash now, this dividend stock is certainly one I would consider that could double in share price…

Read more »

Path to retirement
Dividend Stocks

Need Passive Income? Turn $6,000 Into $106 Every Month

Find the right dividend stock for stable growth and you can turn $6,000 into $106 each month!

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

2 Top Stocks to Supercharge Your TFSA Into a Cash Cow

IA Financial and Brookfield Renewable Partners are great passive income generators for new TFSA investors.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

Invest in This 7.5% Dividend Stock for Passive Income

This dividend stock could provide you with double the amount of annual passive income by investing now instead of at…

Read more »