Passive Income: How To Earn Nearly $500 Per Month In Your TFSA Portfolio

Are you looking for some stability in a volatile market. Here is a method to consider if you aim to earn around $500 in monthly passive income.

| More on:
TFSA and coins

Image source: Getty Images

The markets run on human sentiments. Passive income can help you control your fear. The Tax-Free Savings Account (TFSA) gives you the advantage of making your investment returns tax-free and even reinvesting them tax-free. You can use this advantage to reinvest the dividends and compound your returns. 

How to earn $500/month in passive income

Let’s take two scenarios: 

In the first scenario, you invest $500 every month or $6,000 a year in a bunch of stocks and lock in a 5.5% dividend yield. You withdraw the dividend your portfolio earns. In this scenario, it will take 18 years and a $1.08 million investment ($6,000 x 18) to earn around $500 per month in passive income.

In the second scenario, you invest $6,000 annually and lock in a 5.5% dividend yield. But you reinvest the dividend income in stocks and lock in a 5.5% yield. In this scenario, it will take 13 years and a $78,000 investment ($6,000 x 13) to earn around $500 per month in passive income. The table below can help you see the effects of compounding.  

YearInvestment5.5% Dividend YieldTotal Amount
2023$6,000 $6,000.0
2024$6,000$330.0$12,330.0
2025$6,000$678.2$19,008.15
2026$6,000$1,045.4$26,053.60
2027$6,000$1,432.9$33,486.55
2028$6,000$1,841.8$41,328.31
2029$6,000$2,273.1$49,601.36
2030$6,000$2,728.1$58,329.44
2031$6,000$3,208.1$67,537.56
2032$6,000$3,714.6$77,252.12
2033$6,000$4,248.9$87,500.99
2034$6,000$4,812.6$98,313.54
2035$6,000$5,407.2$1,09,720.79
2036 $6,034.6 
How to build a $500/month passive income portfolio

Remember, the table is an estimate, assuming your portfolio earns a 5.5% dividend yield annually and none of your stocks cut dividends. But the stock market is dynamic. Things change, sometimes in our favour and sometimes against our expectations. 

At best, you can try to keep your portfolio dividend yield over 5.5% and change your strategy if the company you invested in cuts dividends. 

Two stocks to get started on your $500/month passive income goal

BCE stock

BCE (TSX:BCE) is a dividend aristocrat that has been paying dividends for over 40 years without slashing them. The stock aims to pay out a $3.87 dividend per share in 2023 in four quarterly instalments and has already paid its first instalment of $0.9675 in April. As the stock trades below $64, you can lock in an annual dividend yield of 6.1% ($3.87/$63.43). Moreover, the stock has a five-year average dividend yield of 5.57%. 

BCE meets the two requirements of our framework, regular dividends for decades and a 5.5% average yield. 

BCE gives an additional advantage of 5% average annual dividend growth and a dividend reinvestment plan (DRIP). The DRIP buys the stock from the dividend money without brokerage commissions, fees, or service charges. All these features make BCE an ideal stock to put your financial goal into action. 

TC Energy

Like BCE, TC Energy (TSX:TRP) has a 23-year history of paying dividends and growing them at a 7% compounded annual growth rate (CAGR). But the pipeline company has slowed its dividend growth rate to 3% as it channels the funds towards building more gas pipelines. 

TC Energy stock is trading closer to its 52-week low of $50.70, which has increased its dividend yield to 6.84%. The management aims to pay a $3.72 dividend in 2023 and has already declared two of the four quarterly dividends. It also aims to grow its dividend by 3-5% in the coming years. 

While TC Energy poses a risk, the company has the cash flow to maintain its dividend rate. In the worst-case scenario, it might pause the dividend growth. By investing in this stock at its low, you can lock in a 6.8% yield, which is way more than our targeted yield of 5.5%. 

Investing tip 

Investing $3,000 in each of the above two stocks can help you lock in higher yield and dividend growth. It may not be possible to lock in a 5.5% yield every year. This high yield and dividend growth can fill any gaps from lower-yielding investments in the future and help you stay on track with your passive income goal. 

Apart from the above two stocks, consider adding two more stocks from other sectors to diversify your portfolio and reduce downside risk. 

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

edit U-turn
Dividend Stocks

Down 11% From its 52-Week High, Can goeasy Stock Turn Things Around?

Investors looking for value should be drooling at goeasy (TSX:GSY) stock. With a higher dividend and more room to run,…

Read more »

calculate and analyze stock
Dividend Stocks

Sun Life Stock Is Paying $3.24 Per Share in Dividends: Time to Buy the Stock?

Sun Life (TSX:SLF) stock recently bumped its dividend upwards by 4%, creating even more value for investors today.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

Retirees: Here’s How to Boost Your CPP Pension

If you hold dividend stocks like Fortis Inc (TSX:FTS) in a TFSA, you'll take home more income than if you'd…

Read more »

A worker gives a business presentation.
Dividend Stocks

3 Safe Dividend Stocks to Own for the Next 10 Years

Given their consistent performances, healthy growth prospects and solid cash flows, these three dividend stocks are excellent buys for the…

Read more »

A bull outlined against a field
Dividend Stocks

The Bullish Market Left These 3 Stocks Behind, But They’re Buys Right Now

The bullish market left Air Canada (TSX:AC) stock behind.

Read more »

grow money, wealth build
Dividend Stocks

2 Ultra-High-Yield Stocks to Buy Hand Over Fist and 1 to Avoid

I have identified two ultra-high-yield stocks that have fallen to their lows despite strong fundamentals because of sector weakness.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks Under $50 New Investors Can Confidently Buy

Investors looking for strong stocks can be a bit overwhelmed with options. Which is why today we're looking at these…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Cash Kings: 3 TSX Stocks That Pay Monthly

These monthly dividend stocks offer steady and predictable income and high yields, making them attractive to investors seeking regular cash…

Read more »