TFSA: How to Invest for $250 Monthly in Retirement

The TFSA (Tax-Free Savings Account) can be a great place to earn passive income from stock investments. Any income you earn in the account is safe from tax, so you literally get to keep everything you earn.

TFSA: Keep all your income and compound your wealth faster

Over time, keeping your entire return can add up. If you reinvest the proceeds, you can really accelerate the process of compounding wealth. Now, you do want to be cautious to only invest in stocks that you expect to go up over a long period of time.

Since the account is tax-free, you can’t claim your capital losses against your gains in other taxable accounts. So, you want to have confidence that the majority of your stocks are going to go up.

If you wish to earn $250 of dividend income averaged monthly, you will need some substantial cash. $250 of monthly average income equates to $3,000 annually.

The average yield on the TSX is around 3%. At that rate, you would need to invest $100,000. Unfortunately, the total combined TFSA contribution limit for 2023 is only $88,000.

Be aware of TFSA rules, but $250/month of dividend income is possible

To qualify for $88,000 worth of contributions, you need to have been at least 18 years old in 2009 and a resident of Canada since that year. There is some nuance to the TFSA, so be sure to talk to an advisor, the CRA (Canada Revenue Agency), or a tax specialist before you contribute a large amount.

Luckily, many dividend stocks are yielding over 5%. If you wanted to earn an average of $250 per month, you would really only need to invest around $60,000 at a 5% average dividend yield rate. This is certainly possible (subject to the above rules), and here are two solid dividend stocks that could be a nice fit for an income-focused TFSA.

A real estate stock

Dream Industrial Real Estate Investment Trust (TSX:DIR.UN) is starting to look attractive after its stock has pulled back 7% in the past month. It trades at an attractive valuation, and it yields 5.8% today.

Dream has 322 industrial properties that it either owns or operates through joint venture partnerships. Its properties tend to be centrally located with a focus on multi-tenanted properties that can fit a wide array of tenant needs and requirements.

The real estate investment trust has +97% occupancy today. It has been seeing over 40% rental upticks on lease renewals or new leases. It’s a high-quality portfolio that has seen funds from operation (FFO) per unit grow by the mid- to high single digits for the past few years.

If you put $30,000 into Dream stock, you would earn $144.38 in distributions monthly. It’s a nice play for value, income, and modest growth.

A very safe utility for income

An extremely safe dividend stock for your TFSA is Fortis (TSX:FTS). This is not a flashy stock with significant growth by any means. However, if stability is what you want, safety and surety are what you will get.

Fortis owns a portfolio of 10 regulated utilities that span across Canada, the U.S., and the Caribbean. These are largely transmission and distribution assets, which are some of the safest assets a utility can own and operate.

Fortis has a target to grow by about 5-6% a year. It has a balance sheet with very long-dated debt. It does not require a significant amount of additional debt or equity to finance its growth plans.

Fortis has a 50-year history of consecutively increasing its dividend. Only a couple of Canadian stocks have that track record. Chances are good that it will continue to grow its dividend by the mid-single digits ahead.

It yields 4.24% today. A $30,000 investment in a TFSA would earn $317.42 quarterly or $105.80 on a monthly basis.