Investors can use the TFSA (Tax-Free Savings Account) to build a tax-free monthly passive-income portfolio with just $20,000. The TFSA is a popular registered account in Canada, as any returns earned are exempt from taxes. Moreover, you can hold various qualified investments, such as Guaranteed Investment Certificates, stocks, bonds, and exchange-traded funds in this account.
The TFSA contribution limit has increased to $7,000 in 2024, bringing the total contribution room to $95,000. In this article, I have shortlisted two monthly dividend stocks you can buy right now in a TFSA to begin a steady dividend stream in August 2024.
Whitecap Resources stock
Valued at $6.3 billion by market cap, Whitecap Resources (TSX:WCP) offers a tasty dividend yield of almost 7%, given its monthly cash dividend of $0.061 per share. Whitecap is a Canada-based oil and gas company that aims to generate $700 million in free cash flow this year. So, priced at nine times forward funds flow, the TSX stock is quite cheap, making it an enticing investment choice right now.
Given its outstanding share count, it would pay close to $440 million to shareholders in annual dividends, indicating a payout ratio of 63% that is sustainable even if oil prices decline in the near term.
Whitecap generates enough cash flow to service its interest payments with a net debt of $1 billion and a debt/EBITDA (earnings between interest, tax, depreciation, and amortization) multiple of 0.6 times.
The company will also allocate $1 billion towards capital expenditures, which should drive future cash flows and dividends. Since 2011, Whitecap has raised its funds flow at a compound annual growth rate of 11%, while its dividends have risen by 44% annually in the last four years.
Whitecap expects to increase its production from 169,500 barrels of oil equivalent per day (boe/d) in 2024 to 215,000 boe/d in 2029. It expects funds flow to increase to $4 billion by 2029 and eliminate debt in the next five years. Bay Street remains bullish on Whitecap Resources stock and expects the stock to gain 30% in the next 12 months.
Dream Industrial REIT stock
With more than $8 billion in total assets, Dream Industrial (TSX:DIR.UN) is among the largest real estate investment trusts in Canada. Dream Industrial’s extensive portfolio allows it to recycle capital from selling non-strategic assets and reinvesting proceeds in higher-growth projects. In 2024, it has completed dispositions worth $70 million at prices exceeding carrying values.
In the second quarter, Dream Industrial conditionally leased more than 500,000 square feet within various development projects, further expanding its portfolio of cash-generating assets.
The REIT ended Q2 with funds from operations of $0.25 per share, indicating a payout ratio of less than 70%, given it pays shareholders a monthly dividend of $0.058 per share. A sustainable payout ratio allows Dream Industrial to strengthen its balance sheet and maintain operational flexibility.
Dream Industrial offers shareholders a forward yield of over 5%. If we account for dividend reinvestments, the stock has returned 166% in the last decade.
