Retirees: How to Earn $250 Per Month From Your TFSA

Here’s how buying these two dividend stocks now could help you generate attractive monthly passive income from your TFSA.

Jitendra Parashar

Author Bio Jitendra Parashar is a financial journalist who has been writing for The Motley Fool Canada since June 2020. With more than 13 years of experience in financial journalism, equity research, and market analysis, he helps investors understand market developments and identify long-term investment opportunities. Before joining The Motley Fool Canada, Jitendra spent several years at Market Realist covering U.S. equities, major economic developments, and developments in the automotive and technology industries. He also worked in commodity and currency research at brokerage firms, gaining insight into how economic trends, central bank decisions, and geopolitical events influence financial markets. Jitendra writes for beginner investors, dividend seekers, and Canadians looking to build wealth over the long term. He also contributes to the daily TSX Today series, explaining key Canadian market developments and highlighting news investors should watch. Based in India, Jitendra follows Canadian and U.S. markets closely. Outside of work, he enjoys travelling in the Himalayas, street and nature photography, and exploring programming and artificial intelligence. Education MBA in Finance and International Business Bachelor's degree in Journalism Areas of Expertise Canadian and U.S. financial markets, long-term equity investing, dividend investing, macroeconomic and geopolitical trends, automotive stocks, emerging technologies, and artificial intelligence. Social Media Profiles LinkedIn Muck Rack Favorite Investment Quote “Simplicity is the master key to financial success.” — John C. Bogle

Published April 9, 2024 9:30 pm EDT

If you are a retiree looking for some extra income from your Tax-Free Savings Account (TFSA), you might want to consider investing in some dividend stocks that can provide you with steady and reliable cash flow. Companies with strong fundamentals and healthy cash flows pay out a portion of their earnings to shareholders on a regular basis. Investing in such monthly-paying dividend stocks could help you generate passive income without affecting your eligibility for government benefits since dividends are not counted as taxable income in your TFSA.

In this article, I’ll highlight two of the best Canadian dividend stocks that could help you earn $250 monthly from your TFSA. Before I explain how that works, let’s quickly review the fundamentals of these two stocks.

Retirees sip their morning coffee outside. — Source: Getty Images

Whitecap Resources stock

Whitecap Resources (TSX: WCP) is the first dividend stock that could help you earn $250 per month from your TFSA. If you don’t know it already, Whitecap is a Calgary-headquartered company primarily focusing on acquiring and holding interest in oil and gas-producing assets. It currently has a market cap of $6.3 billion as its stock trades at $10.47 per share with 18% year-to-date gains.

At this market price, the company pays a monthly dividend of $0.0608 per share, which translates into a slightly less than 7% annualized dividend yield. Interestingly, in the five years between 2018 and 2023, WCP stock’s annual dividend per share has gone up by 132% as it continues to maintain a strong track record of generating free cash flow.

Despite volatile commodity prices, Whitecap managed to post strong annual revenue of $ 3.55 billion in 2023, helping the company generate a solid funds flow of around $1.79 billion. Last year, it was the fourth most active driller in Western Canada, with a substantial portion of capital expenditures directed towards drilling and completions. These continued growth efforts brighten Whitecap’s long-term financial growth outlook.

RioCan REIT stock

RioCan Real Estate Investment Trust (TSX: REI.UN) is another fundamentally strong dividend stock to consider this year. The REIT (real estate investment trust) owns and operates a strong portfolio of retail and mixed-use properties across Canada. It currently has a market cap of $5.5 billion as its stock trades at $18.50 per share without any major change on a year-to-date basis. RioCan stock offers an attractive 6.1% annualized dividend yield at the current market price and distributes these payouts among investors every month.

In 2023, RioCan’s FFO (funds from operations) rose by 3.5% year over year to $1.77 per unit. Encouraged by this positive growth, the REIT raised its annualized dividends by about 2.8% from a year ago to $1.11 per share, marking its third consecutive year of dividend growth.

Looking forward to 2024, RioCan has set its sights on continuing this momentum with an anticipated FFO per unit in the range of $1.79 to $1.82. Similarly, it aims for a commercial same-property net operating income growth of about 3% in the ongoing year. Its consistent growth efforts with a focus on improving FFO could help its share prices increase in value.

Foolish bottom line

You could expect a tax-free monthly dividend income of about $250.60 if you add 1,635 shares of both Whitecap Resources and RioCan REIT to your TFSA right now. To buy these many shares of both companies at their current market prices, however, you’ll need a total investment of $47,366. This example shows you a possible way to generate monthly passive income from your TFSA, but you should also think about diversifying your portfolio by including more stocks like these instead of investing a large sum of money in just one or two stocks.