Canadian investors can use the TFSA (Tax-Free Savings Account) to generate a steady stream of passive income without having to pay a single dollar in taxes. In recent months, the Bank of Canada has hiked interest rates significantly to combat inflation, making Guaranteed Investment Certificates (GICs) a top investment option right now.
For instance, several GICs offer you an annual interest rate of 5%, making them attractive to income-seeking investors. Inflation has cooled down in recent months and stood at 2.8% in June 2023, so GICs offer you a chance to improve your purchasing power in the near term.
Alternatively, the ongoing stock market correction has driven down valuations of companies across sectors lower, increasing the yields of dividend stocks higher.
You can hold these TSX dividend stocks in a TFSA and earn over $500 each month tax-free. Let’s see how.
SmartCenters REIT
SmartCentres REIT (TSX:SRU.UN) is a real estate investment trust (REIT) that pays shareholders a monthly dividend of $0.154, translating to a yield of 7.7%. One of Canada’s largest REITs, SmartCentres is valued at $4.1 billion by market cap.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| SmartCentres REIT | $24.08 | 1,218 | $0.154 | $188 | Monthly |
| Slate Grocery REIT | $12.55 | 2,337 | $0.072 | $168 | Monthly |
| First National Financial | $37.86 | 775 | $0.20 | $155 | Monthly |
With 189 properties located in Canada, SmartCentres has $11.8 billion in assets that span 34.9 million square feet, which includes retail and office space. It is forecast to invest close to $11 billion in the next five years, expanding its portfolio of income-generating properties, which should drive future cash flows and dividends higher.
These properties include rental apartments, condos, senior residences, hotels, retail, office, and storage facilities. From shopping centres to city centres, SmartCentres aims to reshare the urban and semi-urban landscape in Canada.
SmartCentres also trades at a discount of 20% to consensus price target estimates.
Slate Grocery stock
A grocery-anchored REIT, Slate Grocery (TSX:SGR.UN), currently offers shareholders a dividend yield of 6.9%. Despite a rising interest rate environment, Slate Grocery’s adjusted funds from operations, or AFFO, payout ratio fell by 170 basis points year over year to 96.3%.
The average rent in its portfolio of properties stands at $12.29, which is well below market rates, providing Slate Grocery with enough room to increase rents and improve shareholder value.
Slate Grocery owns and operates real estate in the U.S., which provides Canadians with diversification. With $2.4 billion in assets, Slate Grocery’s strong credit tenants provide unitholders with durable cash flows and the potential for capital appreciation over time.
First National Financial stock
The final monthly dividend stock on my list is First National Financial (TSX:FN). With a monthly payout of $0.20 per share, First National has a dividend yield of 6.3%. First National is a Canada-based originator, underwriter, and servicer of prime-residential and commercial mortgages.
It has $138 billion in mortgages under administration, making the company one of the largest non-bank mortgage originators in Canada. It is also among the top three players in Canada’s mortgage broker distribution channel.
The Foolish takeaway
The cumulative TFSA contribution room in 2023 has increased to $88,000. If we distribute this amount equally in the three TSX stocks discussed above, you can earn a monthly dividend of 511.
You can use this article as an example of investing in monthly dividend stocks and identifying other companies with strong financials and tasty dividends, further diversifying your portfolio.
