In previous articles, I have stressed the importance of establishing consistent passive income as a milestone for Canadian investors. Passive income allows investors to produce unearned income that requires minimal labour to earn and/or maintain. Indeed, the establishment of this kind of income is the way many Canadians are able to rest easy in retirement.
Today, I want to discuss how we can look to generate $10,000 in annual passive income. Better yet, we are going to be utilizing a Tax-Free Savings Account (TFSA) so the bulk of that income will be tax free. Let’s jump in!
Why I’m seeking out passive income in this turbulent market
The S&P/TSX Composite Index shed 122 points on Wednesday, March 22. Nearly every sector finished the day in the red, apart from the battery metals sector, which moved up marginally to close out the trading session. Canadian and global markets have been hit hard by the ongoing turmoil in the banking sector. We have seen the collapse of mid-size United States banks like Silicon Valley Bank and Signature Bank. Meanwhile, the Swiss-based Credit Suisse encountered its own complications and was rescued in an acquisition by its chief national rival UBS Group.
Interestingly, the U.S. Federal Reserve elected to move forward with another interest rate hike this week. This move showed a firm commitment to the policy shift. However, investors should expect further volatility, as formerly reliable investments like Treasury Bills and mortgage-backed securities take a major hit. In this environment, it may be wise to solidify steady passive income and look to ride out the macroeconomic storm.
Timbercreek Financial: How has this stock looked over the past year?
Timbercreek Financial (TSX:TF) is a Toronto-based mortgage investment company that provides shorter-duration structured financing solutions to commercial real estate investors across Canada. Shares of this TSX stock have dropped 3.7% month over month as of close on March 22. The stock is still up 8.5% in the year-to-date period.
In 2022, Timbercreek delivered income from operations of $88.1 million — up from $60.8 million in fiscal 2021. Meanwhile, adjusted net income and adjusted earnings per share increased marginally to $57.5 million, or $0.69 per diluted share, for the full year.
Here’s how you can accomplish our lofty goal…
When we started this piece, I’d introduced an annual passive income target of $10,000. Fortunately, Timbercreek possesses the punching power that will help us reach that big goal. Its shares closed at $7.91 on March 22.
For our hypothetical, we can snatch up 14,400 shares of Timbercreek for a purchase price of $113,865.70. We will look to buy 11,125 shares for $88,000 in our TFSA. The remaining purchase will be for 3,270 shares for a total of $25,865.70. It is worth noting that investors should not seek to throw all their TFSA room at one stock, no matter its dividend yield. Instead, you should look to diversify in your portfolio to protect yourself and better set yourself up for long-term success.
Timbercreek stock offers a monthly dividend of $0.058 per share. That represents a monster 8.7% yield. This investment will allow us to generate monthly passive income of $645.25 in our hypothetical TFSA. Meanwhile, we can churn out $189.66 in the cash account. That works out to a monthly total of $834.91 and an annual passive income amount of $10,018.91. Moreover, $7,743 in annual passive income will be entirely tax free.
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