Use Your TFSA, Earn $145.58 Each Month in Tax-Free Income

Are you looking to create some more income but don’t have the time? Use your TFSA and make some every month!

Amy Legate-Wolfe

Author Bio 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. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy 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. Social Media 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 January 26, 2025 9:00 am EST

| More on: PZA

Using a Tax-Free Savings Account (TFSA) to earn monthly tax-free income is a smart financial strategy for Canadians. The TFSA allows you to grow your investments without worrying about taxes on dividends, interest, or capital gains. This makes it an excellent vehicle for those seeking to build passive-income streams, especially through reliable dividend stocks. A stock like Pizza Pizza Royalty (TSX:PZA) can help you achieve that goal with its consistent monthly payouts and strong financial fundamentals.

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

Why Pizza Pizza

Pizza Pizza Royalty is a standout option for TFSA investors. The company, which operates a royalty pool based on sales from its franchised restaurants, generates a steady income stream that supports its attractive dividend yield. Currently, its forward annual dividend yield sits at approximately 7.24%, making it one of the more lucrative options in the TSX’s consumer discretionary sector.

PZA’s financial health is solid, as evidenced by its recent earnings report. For the quarter ending September 30, 2024, the company reported a net income of $31.13 million and a profit margin of 77.81%. While year-over-year revenue growth dipped slightly by 4.4%, the consistent profitability underscores its stability as a dividend payer. Furthermore, PZA’s payout ratio of 97.63% demonstrates its commitment to distributing earnings to shareholders, albeit leaving limited room for reinvestment.

What sets PZA apart is its resilience, even during periods of economic uncertainty. Over the past five years, it has maintained an average dividend yield of 6.7%. Thereby reflecting its ability to weather challenges and reward investors. Its beta of 0.90 also indicates lower volatility, a comforting factor for conservative investors seeking steady income.

Future outlook

Looking forward, PZA’s prospects remain promising. With consumer demand for fast and convenient dining experiences holding steady, Pizza Pizza’s royalties are likely to benefit. The company continues to expand its footprint and innovate its menu offerings, driving long-term revenue growth. Analysts have highlighted its well-managed operations and efficient cost controls as reasons to expect consistent performance.

By holding PZA in your TFSA, you can maximize the benefits of its high-yield monthly dividends. Since TFSAs shield your investments from taxation, every dollar you earn from PZA goes straight into your pocket. Over time, reinvesting these dividends can compound your earnings significantly, helping you reach your financial goals faster.

The stock’s current trading price, around $12.83, provides a relatively affordable entry point for investors. Given its stable price history, with a 52-week range of $12.31 to $15.09, PZA presents a balanced risk-reward profile. It also benefits from institutional confidence, with 16.69% of its shares held by institutions.

Bottom line

For investors looking to build a diversified TFSA portfolio, PZA complements other monthly dividend payers like SmartCentres REIT or Firm Capital Mortgage Investment Corporation. Its unique positioning in the consumer discretionary sector adds diversification to a portfolio heavily weighted in real estate or financials. In fact, let’s see how much a $7,000 investment could earn investors, with a dividend of $0.93.

COMPANY	RECENT PRICE	NUMBER OF SHARES	DIVIDEND	TOTAL PAYOUT	FREQUENCY	TOTAL INVESTMENT
PZA – now	$12.83	546	$0.93	$507.78	monthly	$7,000
PZA – highs	$15.09	546	$0.93	$507.78	monthly	$8,239.14

Ultimately, PZA’s combination of high yield, monthly payouts, and proven resilience makes it an excellent option for Canadians looking to earn tax-free income through their TFSA. In fact, you’ve now earned $1,239.14 in returns and $507.78 in dividends, for a total of $1,746.92 in passive income. That comes to $145.58 each month! Its potential for steady returns aligns perfectly with the long-term goals of TFSA investors who value consistent, reliable passive income. With today’s low trading price and ongoing growth potential, Pizza Pizza Royalty could be the slice of financial stability your portfolio needs.