TFSA 101: Earn $250 Per Month Tax-Free

Are you looking for income that lasts? This company can provide you with $3,000 per year, or $250 per month, just from dividends!

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published September 6, 2024 4:50 pm EDT

Monthly dividend stocks are like a steady stream of cash flow, making them one of the easiest ways to create passive income! Plus, with the power of compounding, reinvesting those monthly dividends can lead to exponential growth over time. These provide a great sense of financial security and help you build a portfolio that works for you — all while you sit back and watch your investments flourish, especially in a Tax-Free Savings Account (TFSA). So, let’s look at where to get started.

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins — Source: Getty Images

Where to look

When hunting for monthly dividend stocks, investors should first look for companies with a solid track record of consistent dividend payments. This usually means searching for businesses that have not only maintained but also increased their dividends over time. Checking the company’s payout ratio is also crucial. Ideally, it should be manageable, indicating that the company isn’t overextending itself to pay dividends. A well-established business with strong cash flow and profitability is often a safer bet for reliable monthly payouts.

Furthermore, investors should consider the overall health of the company and its growth potential. Look for stocks with a reasonable valuation. This means examining metrics like price-to-earnings (P/E) ratios and price-to-book (P/B) ratios to ensure you’re not overpaying for dividends. Furthermore, diversifying across different sectors can help mitigate risk, as economic downturns can affect industries differently. Lastly, it’s wise to keep an eye on any potential upcoming changes in company leadership or market conditions that could impact dividend sustainability.

Consider REITs

When it comes to finding strong monthly dividend stocks on the TSX, the real estate investment trust (REIT) industry is a standout performer. REITs are known for their attractive dividends because they are required by law to distribute at least 90% of their taxable income to shareholders. Many REITs focus on stable, income-producing properties like residential apartments, shopping centres, or office buildings. Thus making them a reliable choice for investors seeking monthly income. The combination of steady cash flow from rental income and the potential for property value appreciation makes real estate a compelling sector for monthly dividends.

Another industry to consider is the utility sector, where companies typically enjoy steady demand and predictable cash flows. Utilities provide essential services like electricity, water, and natural gas. This stability allows utility companies to maintain and often grow dividends, thus making them an appealing option for dividend-seeking investors. In addition to these sectors, some financial services companies and select telecom firms on the TSX also offer monthly dividends, thereby providing further opportunities to tap into the steady income stream that monthly dividend stocks can deliver!

One to consider

Investing in Dream Industrial REIT (TSX:DIR.UN) could be a fantastic opportunity, especially considering its attractive valuation and strong operational performance. With a market cap of approximately $3.95 billion and a forward P/E ratio of just 15.62, DIR.UN presents a compelling investment case for monthly income. The recent quarterly results showcase a 5.6% increase in net rental income and a steady growth in comparative properties’ net operating income (CP NOI), driven by strong performance in Canada and Europe. This stability is further underscored by the leasing of over 500,000 square feet in various development projects. Thus indicating a growing demand for their properties and a positive outlook for future revenue streams.

With a forward annual dividend yield of 5.13%, DIR.UN provides a steady income. Despite the slight dip in its stock price over the past year, the fundamentals remain strong. Thus making this an excellent entry point for investors. The REIT’s focus on enhancing value through development projects and its disciplined approach to asset management highlights its commitment to driving long-term growth, thereby making it a smart pick for those seeking reliable income and potential capital appreciation!