How to Create the Ultimate Passive-Income Portfolio — and Avoid Being Taxed on it

Canadian investors can build the ultimate passive-income portfolio in their TFSA with top stocks like Extendicare Inc. (TSX:EXE).

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There are many ways to generate passive income in Canada. Today, we are going to take a conventional approach and look to make passive income with some of the best income-yielding equities on the TSX. For this super passive-income portfolio, we are going to stash our stocks in a Tax-Free Savings Account (TFSA). That means that we will be able to avoid paying tax on the income and capital growth we gobble up in this portfolio. For our hypothetical, we are going to play with $42,000. That does not come close to the cumulative contribution room of $88,000 in a 2023 TFSA. Let’s jump in.

Here’s the first stock I’d snatch up to start the ultimate passive-income portfolio

Bird Construction (TSX:BDT) is the first dividend stock I’d target to kick off our TFSA passive-income portfolio. Shares of this dividend stock have dropped 4.8% month over month as of mid-morning trading on Tuesday, June 20. The stock is still up 3.3% so far in 2023.

This company released its 2023 first-quarter earnings on May 9. Construction revenue increased 12% year over year to $536 million. Moreover, adjusted earnings were reported at $5.3 million, or $0.10 per share — down from $6.5 million, or $0.12 per share, in the first quarter of fiscal 2022.

Shares of Bird Construction was trading at $8.35 per share on the morning of June 20. For our hypothetical, we can snatch up 1,650 shares of this dividend stock for a purchase price of $13,777.50. This stock offers a monthly distribution of $0.036 per share. That represents a strong 5.1% yield. Our investment will allow us to generate passive income of $59.40 per month in our TFSA.

This super REIT offers a massive monthly yield!

Northwest Healthcare REIT (TSX:NWH.UN) is a Toronto-based real estate investment trust (REIT) that owns and operates a global portfolio of high-quality healthcare real estate. This REIT has climbed marginally over the past month. Its shares have dropped 19% so far in 2023.

This REIT was trading at $7.68 per share on the morning of June 20. For our TFSA scenario, we can snag 1,850 shares of Northwest Healthcare REIT for a total price of $14,208. The REIT offers a monthly distribution of $0.067 per share, which represents a monster 10% yield. This will allow us to churn out tax-free passive income of $123.95 monthly.

Complete the ultimate passive-income portfolio with this monthly dividend beast

Extendicare (TSX:EXE) is the final dividend stock I’d look to snatch up to round out our super passive-income portfolio. This Markham-based company provides care and services for seniors across Canada. Shares of Extendicare have fallen marginally over the past month at the time of this writing. The stock has climbed 10% so far in 2023.

Shares of this REIT were trading at $7.20 in late-morning trading on June 20. We can snag 1,945 shares of Extendicare for a purchase price of $14,004. This stock last paid out a monthly dividend of $0.04 per share, representing a tasty 6.6% yield. We can now generate monthly passive income of $77.80 in our TFSA.

Conclusion

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
BDT$8.351,650$0.036$59.40Monthly
NWH.UN$7.681,850$0.067$123.95Monthly
EXE$7.201,945$0.04$77.80Monthly

These investments will let us generate total monthly passive income of $261.15 in our TFSA. That works out to tax-free annual passive income of $3,133.80.

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 recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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