Passive Income: How to Earn $470 Per Month in Your TFSA Portfolio

Although inflation shows signs of easing, food and mortgage expenses are still rising. Indeed, food prices have increased by around 20% in the last 20 years. With higher prices eating into your pockets, having a secondary income would help ease inflationary pressure. Investing in monthly-paying dividend stocks would be one of the few convenient means to earn a stable monthly passive income.

Besides, you can make these investments through your TFSA (tax-free savings account) to earn tax-free returns. Here are two high-yielding monthly-paying dividend stocks you can add to your TFSA to earn a stable passive income.

Pizza Pizza Royalty

Pizza Pizza Royalty (TSX:PZA) owns Pizza Pizza and Pizza 73 brand restaurants. It has adopted a highly franchised business model and collects royalties from its franchisees based on their sales. So, rising commodity prices and wage inflation will not impact its royalty pool income, thus generating stable and predictable cash flows.

Amid the reopening of its non-traditional restaurants and customers reacting positively to its value messaging and brand promotions, the company has witnessed solid sales over the last few quarters. In the March-ending quarter, royalty pool income grew by 15.3% amid same-store sales growth of 13.6% and an increase of 17 restaurants in the royalty pool. Supported by its strong sales, the company’s adjusted EPS (earnings per share) grew by 16.1%.

Boosted by its strong financials, PZA raised its monthly dividend twice in two months. It currently pays a monthly dividend of $0.075/share, translating its forward dividend yield to 5.89%. Meanwhile, the company is considering expanding its footprint and expects to increase its restaurant count by 3-4% this year. The opening of new restaurants and positive same-store sales growth could allow the company to continue paying dividends at a healthier rate in the coming years.

PZA stock’s valuation looks attractive, trading at 1.7 times its book value. So, considering all these factors, I believe PZA would be an ideal buy to earn a stable passive income.

TransAlta Renewables

Second on my list would be TransAlta Renewables (TSX:RNW), which owns and operates 48 clean energy-producing facilities with a total production capacity of 3 gigawatts. The company sells most of the power produced from its facilities through long-term PPAs (power-purchase agreements), with the weighted average remaining life of these contracts at 11 years. These long-term contracts shield its financials from price and volume fluctuations, delivering stable and predictable cash flows.

Supported by these solid cash flows, the company has raised or maintained its dividends since going public in 2013. Currently, it pays a monthly dividend of $0.07833/share, with its forward yield at 6.98%. Meanwhile, the company is rehabilitating its Kent Hill facilities, which could become operational in the second half of this year. Besides, its expansion in Australia could boost its financials.

Amid its growth initiatives, the company expects to post an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in the range of $495–$535 million this year, with the midpoint representing year-over-year growth of 5.7%. Also, the company hopes to generate free cash flows of $340–$380 million, making its dividends safer.

However, earlier this month, TransAlta signed an agreement to acquire TransAlta Renewables. The company’s management expects to close the deal by the fourth quarter of 2023. Meanwhile, until the deal’s completion, investors can enjoy a healthy dividend yield of 7%.

Investors’ takeaway

The Canada Revenue Agency (CRA) has fixed the contribution room for this year at $6,500. The cumulative amount for investors who were 18 years and above in 2009 will be $88,000. If you invest half of that amount in each of the above two TSX stocks, you can earn over $470/month in dividends. Besides, you can also benefit from stock price appreciation.

However, investing a significant amount in just a couple of stocks is not advisable. Investors should look to diversify their investments to minimize their risks.