One of the goals of every investor is to establish a passive-income stream that can generate oodles of cash per month. Even better if the income you generate can grow tax-free.
Fortunately, it can be done, and here’s how.
Source: Getty Images
Let’s start with the tax-free bit
Establishing a passive income stream is a great goal for every investor. Building that out in a tax-free account can supercharge that eventual income stream over the longer term.
One of the best ways to build that out is to establish a Tax-Free Savings Account (TFSA). The TFSA is a type of retirement account that allows investors the ability to both save and invest a set amount each year without paying taxes on any gains.
There’s an annual limit on how much investors can throw into a TFSA. For 2024, that limit works out to $7,000. What this means is that investors can drop that amount into a TFSA, purchase stock and let it (and received dividends) grow tax-free.
That’s not all. TFSAs come with no withdrawal penalties, as is the case with other retirement accounts.
In other words, if you pick the right stocks to invest in to generate a passive income, they can be an incredible source of tax-free growth for what could be decades.
Now, then, what stocks should prospective investors choose to invest in to generate that juicy tax-free passive income?
Here are two great picks that are hard to ignore.
The ultimate passive-income venture
One of the most popular ways to establish a passive income stream is by owning and renting a property. While this method does offer some advantages, it also carries significant risks and, in recent years, has become more difficult to attain.
As an alternative, would-be landlords should consider a real estate investment trust (REIT) like RioCan Real Estate (TSX:REI.UN). RioCan is one of the largest REITs in Canada with a swath of nearly 190 properties, representing 32.6 million square feet of leasable area.
The company is also committed to expanding its footprint, with a whopping 44.1 million square feet in its development pipeline.
An increasing number of those properties are mixed-use residential sites, and that is where a significant opportunity lies.
The properties, which RioCan dubs RioCan living, consist of residential towers that sit atop several floors of retail. They are located along high-traffic transit corridors in Canada’s major metro markets, with an occupancy rate north of 97%.
Apart from taking the management of the site away from a single tenant, investing in RioCan also spreads out that risk to hundreds of properties. And perhaps best of all, RioCan pays out a juicy monthly distribution, much like a landlord collecting rent.
As of the time of writing, RioCan offers a yield of 5.74%, making it an attractive option for passive-income investors.
How about investing in a basket of companies?
Another great option for passive income investors looking for a monthly income to consider is Exchange Income Corporation (TSX:EIF). Exchange is an acquisition-focused company that owns over a dozen subsidiaries.
Those subsidiaries are broadly classified into one of two baskets: aviation and manufacturing. Somewhat surprisingly, those subsidiaries also share two unique factors that help make Exchange a must-have for passive-income investors.
First, they all generate cash for the company, which allows Exchange to pay out a handsome dividend and invest in growth. As of the time of writing, that monthly dividend works out to a tasty 5.40% yield.
Oh, and let’s not forget that Exchange has provided annual upticks to that dividend 17 times in the past 19 years.
Second, the subsidiaries all provide a necessary service to which there is limited or no competition. By way of example, this includes providing passenger and cargo service to Canada’s remote north regions.
Generate passive income of $180 per month
Both Exchange and RioCan can offer investors a juicy passive-income stream. Here’s how a $20,000 investment in each can provide a monthly income of $180.
| Company | Recent Price | No. Of Shares | Dividend | Total Payout | Frequency |
| RioCan Real Estate | $19.25 | 1,038 | $1.11 | $95.05 | Monthly |
| Exchange Income Corporation | $48.78 | 410 | $2.64 | $90.20 | Monthly |
Prospective investors who aren’t ready to draw on that income yet can reinvest it, allowing that income to grow until needed.
