The Tax-Free Savings Account (TSFA) is a strong option for investors interested in earning passive income these days. And, frankly, most of us need it.
Inflation may be easing, but it’s still far higher than we were used to over the years. Especially since we had plenty of cash on hand, after the pandemic kept us indoors with fewer ways to spend.
So now we’re facing the opposite financial predicament. High costs, high interest rates, and no new ways of producing passive income. That is, unless you start investing and place a strong dividend stock in your TFSA.
An option to consider
The TFSA can be a passive income powerhouse when used correctly. The current contribution limit is at $88,000, meaning you could be putting all that cash to work, creating fixed income while also seeing returns rise higher.
A strong option these days would be Diversified Royalty (TSX: DIV) on the TSX today. The royalty stock currently has a large dividend yield at 8.19%, as of writing, which is far above the average of 2.02% among Canadian stocks.
Diversified Royalty stock has a few things going for it. This includes investing in a number of diverse industries, from oil and gas to mining and forestry. This helps during times of volatility, and also offers growth for today’s investor.
It’s also a royalty stock, providing a more stable investment for investors seeking passive income. It merely collects royalties from its underlying assets, and with many under its banner it’s less likely to underperform compared to companies focused on one area of the market.
Earnings soar past estimates
The company’s earnings are another reason to consider this dividend stock for passive income in your TFSA. Diversified Royalty stock recently reported earnings that beat out estimates for yet another quarter. It was a strong earnings report, with both management and investors pleased with results.
Revenue rose 26.7% year over year to $12.3 million, with adjusted revenue up 23.9% to $13.6 million. Distributed cash hit $8.8 million, up 22.6% compared to the year before. Further, its payout ratio of 96.1% was stronger than the 93.6% in 2022.
“We are very pleased with the strong start to 2023. This has been our best first quarter ever in terms of adjusted revenue and distributable cash. Mr. Lube, our largest royalty partner, continues to produce strong results, generating SSSG of 17.6% for the period ended March 31, 2023, while Mr. Mikes and Oxford continue to show double-digit SSSG of 30.5% and 15.8%, respectively.”
Sean Morrison, President and Chief Executive Officer
How long a wait for that cash?
If you’re looking for $333 in monthly dividends, that means eventually reaching a total annual passive income amount of $3,996. If investors were to put $15,000 into the stock and reinvest dividends, this would take just 11 years to reach $333 in monthly dividend income.
So don’t just let your cash sit there in your TFSA! Put it to work and you could achieve a significant amount of stable passive income for the rest of your days.
