Passive Income: How to Make $50 Per Month Tax-Free

The average TFSA (Tax-Free Savings Account) balance at the end of 2023 was roughly $41,000. Let’s see how you can allocate $10,000 and earn $50 in passive income each month tax-free.

What is the TFSA and how does it work?

The TFSA is a registered account in Canada that helps you generate tax-free income for life. You can hold a variety of qualified investments in the account across asset classes, such as stocks, bonds, exchange-traded funds, and mutual funds.

Any returns earned in a TFSA are exempt from Canada Revenue Agency taxes, making it an ideal account to hold cheap monthly dividend stocks that should help investors benefit from a steady payout and long-term capital gains. Here are two quality TSX dividend stocks TFSA investors can gain exposure to in 2024.

Exchange Income stock

Valued at $2.2 billion by market cap, Exchange Income (TSX:EIF) pays shareholders an annual dividend of $2.64 per share, translating to a yield of 5.7%. Exchange Income is an acquisition-oriented company focused on the aerospace and aviation segments. It uses a disciplined acquisition strategy to identify profitable companies that generate steady cash flow and operate in niche markets with opportunities for organic growth.

Last month, Exchange Income announced the acquisition of Armand Duhamel & Fils for $19 million, which should drive future cash flows higher. The acquisition was funded by $3 million in stock and $16 million in debt.

In the first quarter (Q1) of 2024, Exchange Income reported revenue of $602 million, up 14% year over year. It reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $111 million, up from $97 million in the year-ago period. The company’s free cash flow totalled $62 million in the March quarter, indicating a sustainable payout ratio of 58%.

Exchange Income deployed close to $40 million towards capital expenditures, which will allow it to grow its cash flow and dividend consistently going forward.

Priced at 14 times forward earnings, Exchange Income stock is really cheap and trades at a 40% discount to consensus price target estimates.

Sienna Senior Living stock

Another high-yield TSX stock is Sienna Senior Living (TSX:SIA), which offers you a forward yield of 6.4%. Sienna Senior provides senior living and long-term-care services in Canada and operates through two business segments that include retirement and long-term care.

Sienna Senior Living is positioned for long-term growth, driven by the rising needs of seniors, the fastest-growing demographic in the country.

During its Q1 earnings release, the company stated, “The return to a stable operating environment across Sienna’s long-term care operations, coupled with a number of significant funding announcements by the Governments of Ontario and British Columbia, resulted in strong year-over-year NOI growth.”

In Q1 of 2024, Sienna Senior increased total sales by 19.9% year over year to $239.4 million. In the retirement business, the increase was driven by annual rental rate hikes, occupancy increases, and ancillary sales. In the long-term care business, it received a one-time government funding of $27 million which contributed heavily to top-line growth.

Analysts remain bullish and expect the stock to surge over 12% in the next 12 months.

The Foolish takeaway

An investment of $10,000 distributed equally in these two companies should help you earn $50 in monthly dividends, resulting in an annual payout of $600 and a yield of 6%.