Tax-Free Savings Account (TFSA) investors can generate their desired tax-free monthly passive income by religiously contributing to the account. The federal government introduced the one-of-a-kind investment account in 2009, and the cumulative limit has ballooned significantly.
If you were 18 in 2009 but have yet to open a TFSA, the total contribution room in 2024 would be $95,000. The same amount invested in a dividend stock with a 7% yield will produce $6,650 in annual passive income or $554.17 in tax-free monthly income.
Assuming you also want to earn $550 monthly, consider using your TFSA annual limits to invest in Freehold Royalties (TSX: FRU) or Laurentian Bank (TSX: LB). Both stocks offer more than 7% dividend yields.
If the annual limits remain constant at $7,000, you’d reach the $550 per month goal over time or in 13.5 years. The TFSA is ideal for long-term investors or Canadians building retirement wealth.
Royalty advantage
The payout frequency of most TSX stocks is quarterly, although some stand out for their monthly dividend payments. Freehold Royalties in the energy sector is one of them. At $14.18 per share, you can partake in the lucrative 7.62% dividend.
A $7,000 position will generate $44.45 in monthly passive income. Through dividend reinvesting, the recurring payout should grow and reach $550 monthly in around 12.5 years. This $2.14 company is not an oil producer but an energy royalty corporation.
Freehold owns vast royalty lands in North America’s top basins (6.2 gross acres in Canada and 1.1 gross drilling acres in the United States. It collects royalties or revenue streams from industry operators and drillers. The dividend track record is 28 years, and the total dividend payment from 1996 to 2024 is over $2.1 billion.
The top-tier clients include ExxonMobil, ConocoPhillips, Canadian Natural Resources, and Whitecap Resources. Because of its diversified portfolio (crude oil, natural gas, and natural gas liquids), Freehold assures low-risk returns and dividend sustainability.
In the first quarter (Q1) of 2024, royalty revenue dipped 3% year over year to $74.3 million, while net income increased 10% to $34 million compared to Q1 2023. Management expects activity in the royalty lands to be active through the remainder of 2024 due to rising commodity prices and payors’ strength.
Revamped strategic plan
Laurentian Bank is a small-cap but generous dividend stock. At $26.30 per share, the dividend offer is 7.15%. This $1.15 billion bank’s specialized lending program is its growth engine. Its Quebec-based retail network supports the nationally scaled core commercial banking business. The target market is middle-class Canadians.
In Q2 fiscal 2024, net loss reached $117.5 million compared to the $37.3 million net income in Q2 fiscal 2023. Still, its president and chief executive officer, Eric Provost, said, “The bank maintained a strong and prudent liquidity position and remains well capitalized in light of continuing macroeconomic headwinds.”
LB launched “Our Path Forward” in May, a revamped strategic plan that positions the bank for future growth. Provost added, “Commercial Banking will remain the bank’s growth engine, and we will grow market share in Personal Banking by introducing new, low-cost, value-add products to attract new customers and increase deposits.”
Better choice
Freehold Royalties and Laurentian Bank are both dividend titans. However, you have less risk and better chances of hitting your desired TFSA monthly passive income with the energy stock.
