Holding quality dividend stocks in a TFSA (Tax-Free Savings Account) can help Canadians create a steady monthly passive-income stream. Moreover, the best dividend stocks increase wealth over time via capital gains or share price appreciation. Both dividends and capital gains earned by holding Canadian stocks in the registered account are exempt from taxes. So, let’s see how to make $100 per month in passive income without paying zero taxes in 2024 by investing in TSX dividend stocks.
Freehold Royalties stock
One of the most popular monthly dividend stocks in Canada is Freehold Royalties (TSX: FRU), which offers a forward yield of 7.6%. An asset-light company, Freehold acquires and manages oil and gas royalties in Canada and the U.S.
Similar to other royalty companies, Freehold does not have to invest in capital expenditures to drill or equip oil wells for production. Additionally, it does not have to allocate capital to operate the oil wells, resulting in high profitability and cash flows.
With interest in 18,000 producing wells, Freehold receives royalty income from roughly 380 operators. Its diversification reduces operational risk, making it one of Canada’s top oil royalty stocks.
In the March quarter, Freehold Royalties reported sales of $74 million. It ended the first quarter (Q1) with funds from operations of $54 million or $0.36 per share. Given its monthly payout of $0.09 per share, it has a payout ratio of 75%.
Alternatively, Freehold’s cash flow and dividends are tied to oil prices and demand. For instance, the company paid shareholders a monthly dividend of $0.468 per share in January 2005, and the payout fell to $0.1 per share during the financial crash of 2009. In the last eight years, Freehold’s dividends have more than doubled due to a stable pricing environment amid multiple macroeconomic challenges.
Alaris Equity Partners stock
Another royalty company with a high dividend is Alaris Equity Partners (TSX: AD.UN), which offers a yield of 8.3%. Alaris provides alternative financing to profitable private companies in exchange for distributions, with the aim of generating stable and predictable cash flows that are paid to shareholders as dividends.
These distributions received from partners are adjusted yearly based on the percentage change in top-line financial performance, such as gross margins and same-store sales.
Alaris has a business model that seeks to combine equity-like returns with debt-like protections. Given its existing portfolio, Alaris is poised to generate a baseline cash yield of 13%. Further, an asset-light and scalable business model with low overhead costs allows it to report EBITDA (earnings before interest, tax, depreciation, and amortization) margins above 80%.
In Q1 of 2024, Alaris reported an EBITDA of $39.1 million or $0.86 per share, up 28.4% year over year. Comparatively, its payout ratio stood at 66%, providing it the flexibility to raise these payouts further or target other accretive investments.
The Foolish takeaway
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Alaris Equity | $16.43 | 487 | $0.34 | $166 | Quarterly |
| Freehold Royalties | $14.14 | 565 | $0.09 | $51 | Monthly |
A total investment of $16,000, equally distributed in the two TSX stocks, should help you earn over $1,272 in annual dividends, resulting in an annual payout of $106 and an average yield of almost 8%.
