Income Investors: Earn Tax Free in Your TFSA With This High-Yield Investment

Income investors should feel good about stashing a high-yield stock like Automotives Properties REIT (TSX:APR.UN) in their TFSA.

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The S&P/TSX Composite Index suffered a triple-digit retreat this past Tuesday — the second last trading day in May. Indeed, the Canadian market has encountered turbulence since late April. This environment may have spurred some Canadians to alter their investment strategy. Today, I want to explore how an income-oriented investor may want to proceed. In this instance, we will look to target a top high-yield dividend stock in a Tax-Free Savings Account (TFSA). Let’s jump in.

Here’s why the TFSA can be a fantastic investment vehicle for income investors…

The Tax-Free Savings Account (TFSA) was introduced by the Canadian government as another registered account all the way back in January 2009. This account was capped at a set contribution limit. With that amount, Canadian investors had maximum flexibility to pursue any number of strategies to grow their principle. Best of all, all the gains accumulated in the TFSA are entirely tax free.

Readers have likely been inundated with stories of the “TFSA Millionaire.” These stories of fantastic growth and big gambles that pay off are always thrilling. However, the TFSA can also be a fantastic vehicle for income investors. After all, the income you generate in a TFSA is also entirely tax free. Now, the cumulative contribution room in a TFSA sits at $88,000. That is a solid baseline to churn out tax-free income going forward.

This high-yield investment belongs on your radar in 2023!

Automotive Properties REIT (TSX:APR.UN) is the high-yield investment vehicle I have my eyes on in the final day of May 2023. This Toronto-based real estate investment trust (REIT) is focused on owning and acquiring primarily income-producing automotive dealership properties across Canada. Its shares have dropped 13% in the year-to-date period as of close on May 30. Investors can see more of its recent performance with the interactive price chart below.

This company released its first-quarter (Q1) fiscal 2023 results on May 11. Automotive Properties delivered rental revenue growth of 12% to $22.8 million. Meanwhile, adjusted funds from operations (AFFO) rose marginally to $11.4 million. Net operating income increased 10% year on year to $19.4 million.

Shares of this high-yield REIT currently possess a very favourable price-to-earnings ratio of 6.3. That puts this REIT in strong company value-wise compared to its peers.

Income investors: How you can churn out chunky passive income in your TFSA today

Now we come to the part that income investors are most concerned with. For this hypothetical, we can put aside $5,000 in our TFSA to stash shares of the Automotive Properties REIT. On May 15, this REIT announced a monthly distribution of $0.067 per share. That represents a very tasty 7.1% yield.


Automotive Properties REIT closed at $11.24 on Tuesday, May 30. Going back to our hypothetical, we can snatch up 444 shares of this REIT for a purchase price of $4,990.56. This purchase will allow us to churn out tax-free, monthly passive income of $29.74. That works out to an annual tax-free payout of $356.97. Income investors should be happy with this offering going forward.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Automotive Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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