The hot streak for the Canadian market during the spring season has seemingly come to an end in the first trading week of May. There is still considerable uncertainty surrounding the Canadian and global economy. In this climate, Canadian investors may want to focus on generating passive income in the months ahead.
Today, I want to discuss how we can look to generate strong passive income completely tax free. To achieve that, we are going to stash our income yielding equities in a Tax-Free Savings Account (TFSA). In this hypothetical, we are going to utilize $60,000 in TFSA room, which currently boasts a cumulative contribution room of $88,000 as of 2023. Let’s jump in!
This dirt-cheap REIT is a great target to start to build our passive-income portfolio
Artis Real Estate Investment Trust (TSX:AX.UN) is a real estate investment trust (REIT) based in Winnipeg that owns and operates industrial, office, and retail properties in Canada and the United States. Shares of this REIT have dropped 9.6% month over month as of close on May 4. The stock is down 26% so far in 2023. Investors can toggle the interactive price chart below.
In fiscal 2022, this REIT posted total revenue of $372 million — down 11% compared to the previous year. Moreover, net operating income also slipped 11% to $209 million. Artis REIT posted adjusted funds from operations (AFFO) of $112 million or $0.95 per unit — down 9.6% or 1%, respectively, from the previous year.
This REIT closed at $6.71 per share on May 4. For our hypothetical, we can snatch up 2,980 shares of Artis REIT for a purchase price of $19,995.80. The REIT currently offers a monthly distribution of $0.05 per share. That represents a monster 8.9% yield. This investment will allow us to churn out tax-free passive income of $149 per month.
Here’s an ultra high-yield dividend stock to snatch up in our TFSA
Timbercreek Financial (TSX:TF) is a Toronto-based mortgage investment company that provides shorter-duration structured financing solutions to commercial real estate investors in Canada. Its shares have dropped 5.8% month over month as of close on May 4. The stock is still up 4.3% in the year-to-date period.
This company delivered record quarterly net investment income of $31.3 million — up 39% compared to the prior year. Moreover, it posted record annual net investment income growth of 21% to $109 million.
Shares of Timbercreek currently possess a favourable P/E ratio of 11. This stock closed at $7.61 on May 4. We can buy 2,628 shares for a total price of $19,999.08. Timbercreek offers a monthly dividend of $0.058 per share, which represents a super 9% yield. Our investment will allow us to churn out tax-free monthly passive income of $152.42.
One more stock to round out our passive-income portfolio
Keg Royalties Income Fund (TSX:KEG.UN) is a Vancouver-based open-ended limited purpose trust that aims to deliver strong dividends for its shareholders. It is invested in The Keg restaurant chains. Shares of this income fund have dropped 2.1% so far in 2023.
In fiscal 2022, Keg Royalties achieved royalty pool sales growth of 57% to $676 million. Meanwhile, distributable cash jumped 83% to $1.084 per fund unit for the full year. Total income rose to $31.3 million compared to $21.4 million in fiscal 2021.
Keg Royalties closed at $15.37 on Thursday, May 4. For our final purchase, we’ll snag 1,301 shares of Keg Royalties for a purchase price of $19,996.37. Keg Royalties offers a monthly dividend of $0.095 per share, representing a 7.3% yield. This investment will let us generate tax-free monthly passive income of $123.59.
Conclusion
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| AX.UN | $6.71 | 2,980 | $0.05 | $149 | Monthly |
| TF | $7.61 | 2,628 | $0.058 | $152.42 | Monthly |
| KEG.UN | $15.37 | 1,301 | $0.095 | $123.59 | Monthly |
These investments in our hypothetical TFSA will let us generate monthly passive income of $425 from here on out. That works out to annual passive income of $5,100.12.
