Do you want to live off of passive Tax-Free Savings Account (TFSA) dividend income?
It’s a common goal, but it’s not the easiest thing to do. TFSA contribution room is limited, and the TSX index only yields 3%. In the meantime, most stocks pay dividends quarterly, so the “monthly income” thing can also be challenging. Nevertheless, it is possible to get to $250 per month in passive dividend income in a TFSA, assuming that you have the maximum amount of contribution room ($95,000).
In this article, I will explore two ways that you could possibly get to $250 per month in dividend income.
Option #1: Invest maxed-out TFSA in index funds
One way to get to $250 “per month” in TFSA dividend income is to invest in TSX index funds. These funds pay out quarterly, but they can provide you with a yield that averages out to $250 per month.
$250 per month is $3,000 per year. At the TSX’s average dividend yield of 3%, it takes $100,000 to get to $250 “per month.” So, you can get an amount of passive income averaging $250 per month with $100,000 invested in TSX index funds. You can even try spreading your investments across multiple index funds and stocks so that a portion of it comes in each and every month.
Option #2: Try for the same yield with less money using dividend stocks
You can also get to $250 per month in dividend income by investing in monthly paying dividend stocks. These stocks can be risky, but their frequency of payment is unmatched. Also, they tend to have higher-than-average dividend yields.
Consider First National Financial (TSX:FN) for example. It’s a Canadian lending corporation that pays out $0.204167 in monthly dividend income. That works out to $2.45 per share per year. The stock only costs $36.36, so you get a 6.6% dividend yield when you invest in FN today.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| First National | $36.39 | 1,225 | $0.204167 per month | $250 per month | monthly |
How much money would you need to invest in FN stock to get $250 per month back in dividend income?
Before going any further, I should say that you should not actually invest your entire TFSA into FN stock. Portfolios need some diversification to hedge against the risks in specific companies — in FN’s case, these risks are substantial. They include a housing market slowdown, interest rate cuts, and mortgage defaults. All financial companies face risks like these. The Motley Fool generally recommends at least 25 stocks in a portfolio for this reason.
Nevertheless, the table above does illustrate what’s possible with high-yield dividend stocks. If you build a diversified portfolio of such stocks, you can achieve income like that shown above with much less risk than you could by holding just one stock. First National is a decent stock worthy of inclusion in a well-diversified portfolio, but you shouldn’t “go all-in” on it or any other stock.
