The Tax-Free Savings Account (TFSA) has been a strong passive-income provider since its introduction in 2009. Since that availability, investors have been given the opportunity to contribute year after year. Now, there is a total of $88,000 in contribution room if you were at least 18 in 2009.
If you’ve been contributing since that time, then, you may have a bunch of cash sitting around doing nothing. That’s certainly not what the TFSA is meant for. Instead, if you’ve diversified your investments and are looking for a stream of passive income, there is a chance to create $500 in monthly income starting quite soon.
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A stock to consider
First off, let’s identify a strong opportunity for investors who want to see their passive income grow to $500 per month. For that, we’ll need a solid monthly dividend provider with more room to grow. That’s why Sienna Senior Living (TSX: SIA) is a great option.
Sienna stock focuses on long-term-care facilities and senior living. These are areas providing investors with immense amounts of growth in the years to come. That’s thanks to an aging baby boomer population and the generations who will need more help in the years to come as they age.
There is already high demand for these properties, making Sienna stock an excellent choice with its foot already firmly in place. Yet shares are down 12% in the last year, offering investors a chance to lock up a dividend yield at 8.15% as of writing. And it’s already shrinking, with shares climbing 6.65% in the last three months.
How to create $500
Let’s say you’re an investor that plans to max out contributions over the next few years. That would mean contributing about $6,500 each year to your TFSA. Furthermore, you have about $20,000 you want to put into passive-income streams, so we’ll use Sienna stock as an example here.
The goal is to create $500 per month, or $6,000 in annual passive income. To do this, you’ll want to invest in Sienna stock each year and see conservative growth in that time in both share price and dividend. We’ll say that Sienna stock grows at 2% per year, as the last few years have been quite difficult due to COVID-19 impacts. The dividend, meanwhile, has risen by a compound annual growth rate (CAGR) at 0.44%—conservative growth but growth, nonetheless.
Here is how long it would take to reach $6,000 in annual passive income, starting with a $20,000 investment.
| Year | Share Price | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Stock Price | New Shares Purchased | Year End Shares Owned | New Balance |
| 1 | $12 | 1667 | $0.94 | $1,566.98 | $21,570.98 | $6,500 | $12.24 | 659.02 | 2326.02 | $29,637.38 |
| 2 | $12.24 | 2326.02 | $0.94 | $2,186.46 | $31,823.84 | $6,500 | $12.48 | 696.03 | 3022.05 | $40,510.29 |
| 3 | $12.48 | 3022.05 | $0.95 | $2,870.95 | $43,381.24 | $6,500 | $12.73 | 814.69 | 3836.73 | $53,752.24 |
| 4 | $12.73 | 3836.73 | $0.95 | $3,644.89 | $57,397.13 | $6,500 | $12.99 | 780.97 | 4617.7 | $67,541.93 |
| 5 | $12.99 | 4617.7 | $0.96 | $4,432.99 | $71,974.92 | $6,500 | $13.25 | 825.13 | 5442.83 | $82,907.91 |
| 6 | $13.25 | 5442.83 | $0.96 | $5,225.12 | $88,133.03 | $6,500 | $13.51 | 867.88 | 6310.71 | $99,858.09 |
| 7 | $13.51 | 6310.71 | $0.97 | $6,121.39 | $99,858.09 | $6,500 | $13.78 | 915.92 | 7226.63 | $112,479.47 |
After seven years, investors would have over $6,000 in annual passive income, or $500 monthly. Plus, they would have a total portfolio of $112,479.47 from these conservative results. And that’s after investing a total of $65,500 over those seven years!
