TFSA: The Ultimate Way to Earn $37.91 in Monthly Tax-Free Passive Income

If you want cash, you want it now. But how upsetting is it to look at your monthly or bi-weekly pay cheque and see all the taxes taken off it?

While I can’t help with your salary, I can help with your passive income. That comes down to investing in a Tax-Free Savings Account (TFSA). By combining the TFSA with a solid dividend stock, you can create monthly passive income for life while never, ever paying taxes.

The TFSA

The TFSA in Canada is an excellent tool for generating tax-free monthly passive income due to its unique tax advantages. Contributions to a TFSA are made with after-tax dollars, meaning there is no tax deduction for contributions, but the real benefit lies in the growth and withdrawals. All investment income, including interest, dividends, and capital gains earned within the TFSA, are completely tax-free.

When it comes time to withdraw funds, whether it’s for monthly income or a lump sum, there are no taxes applied, providing a steady stream of income without the burden of additional taxes. Plus, unlike other retirement accounts that might have age restrictions or penalties for early withdrawals, the TFSA allows you to withdraw funds at any time for any purpose without tax consequences.

Plus, the TFSA is versatile in terms of the types of investments it can hold, making it suitable for various investment strategies aimed at generating passive income. You can hold a diverse range of investments within your TFSA, including dividend-paying stocks, bonds, mutual funds, exchange-traded funds (ETF), and even Guaranteed Investment Certificates (GIC). But there’s one I’d recommend above the rest.

Industrial REITs

Industrial real estate investment trusts (REITs) are a strong option for creating passive income due to their unique positioning in the real estate market. One of the primary strengths of industrial REITs is the sustained demand for industrial space. This is driven by the growth of e-commerce and logistics. As online shopping continues to surge, companies require extensive warehousing and distribution facilities to manage inventory and streamline delivery processes.

Another advantage of industrial REITs is their long-term lease structures, often with built-in rent escalations. These leases typically span several years, providing a predictable and secure income stream. Furthermore, the industrial sector tends to experience lower tenant turnover compared to other real estate sectors.

Tenants, including manufacturers, logistics companies, and e-commerce giants, often invest significantly in customizing these spaces to suit their operational needs. This makes them less likely to relocate. Plus, this stability in tenancy contributes to consistent cash flows and minimizes the risk of vacancies. And that further enhances the reliability of passive income from industrial REITs.

Dream REIT

So, if you’re interested in a top industrial REIT, I would consider Dream Industrial REIT (TSX:DIR.UN). It stands out as a strong stock investment, supported by its solid financial performance and promising growth prospects. With a trailing price-to-earnings (P/E) ratio of 19.46 and a forward P/E ratio of 15.15, Dream Industrial REIT is attractively valued. And this suggests that investors anticipate earnings growth. The stock’s price-to-book ratio of 0.83 indicates it is trading below its book value, offering a potential value investment opportunity.

Yet Dream Industrial REIT has experienced a moderate decline of 6.04% over the past year, as of writing. Despite this, the stock’s beta of 1.25 suggests higher volatility, which could be an advantage in a recovering market.

Meanwhile, the company looks sound. Dream Industrial REIT reported impressive quarterly revenue growth of 43.70% year over year, with total revenue of $481.2 million. The profit margin of 40.86% and operating margin of 71.47% reflect efficient management and strong profitability. Furthermore, Dream Industrial REIT’s forward annual dividend yield of 5.23% and a payout ratio of 101.75% underscore its commitment to returning value to shareholders, making it an attractive option for income-focused investors.

Bottom line

So, the big question: how much could you get? If you were to invest $5,000 and see its shares rise by a compound annual growth rate (CAGR) of 3.75%, here is what that could turn into.

As you can see, investors could bring in $187.56 in returns and $267.40 in dividends. That’s total passive income of $454.96 for the year. And monthly? That comes to $37.91! It’s a nice addition to any portfolio.