How to Use Your TFSA to Average $104.38 per Month in Tax-Free Passive Income

The TFSA can be a powerhouse that works for you, and this dividend stock is exactly how to make it work its hardest.

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.

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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 February 19, 2025 9:00 pm EST

| More on: FN

If you’re looking to turn your Tax-Free Savings Account (TFSA) into a steady stream of tax-free passive income, First National Financial (TSX:FN) could be a strong contender. As one of Canada’s largest non-bank mortgage originators and underwriters, First National has built a reputation for delivering consistent dividends, thus making it an attractive choice for investors seeking reliable cash flow, especially for predictable monthly income.

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Why First National

First National recently released its third-quarter 2024 earnings, and while revenue saw a slight decline, the dividend stock remains on solid footing. Mortgages Under Administration (MUA) climbed to $150.6 billion, a 6% increase year over year, highlighting the company’s ability to maintain growth despite a shifting economic landscape.

Revenue for the quarter came in at $560.4 million, reflecting a minor 1% dip compared to the same period last year. However, this decline wasn’t enough to shake the company’s confidence in its ability to reward shareholders. In October 2024, the Board of Directors increased the regular monthly dividend to an annualized rate of $2.50 per common share – up from $2.45, and with a special dividend of $0.50 per common share. This move underscores the company’s strong financial health and commitment to delivering value to its investors.

Over the past year, First National’s stock has demonstrated resilience, with a modest gain of approximately 2.5%. While this may not seem dramatic, it’s important to remember that income investors are primarily interested in the company’s dividend consistency. The stock’s price-to-earnings (P/E) ratio currently stands at 10, suggesting that it remains fairly valued relative to its earnings.

A TFSA workhorse

For TFSA investors, First National’s dividend yield is particularly attractive. The company currently offers a trailing annual dividend yield of around 6.2%, which is well above the average for TSX-listed stocks. The recent dividend hike only adds to its appeal, reinforcing its status as a solid income-generating asset. The fact that dividends earned within a TFSA are entirely tax-free makes this yield even more valuable, allowing investors to pocket the full amount without worrying about tax deductions.

Including First National in a TFSA portfolio is a strategic move for those aiming to average a set amount of monthly income. The company’s history of stable payouts and responsible financial management suggests that its dividends are sustainable over the long term. While no investment is entirely risk-free, First National’s strong balance sheet and consistent profitability make it one of the more dependable mid-cap dividend stocks available.

That being said, investors should always consider diversification when building a TFSA income portfolio. While First National offers a great opportunity for passive income, pairing it with other high-yielding stocks across different sectors can help spread risk and provide additional stability. A well-balanced mix of financials, utilities, REITs, and energy stocks can create a reliable income stream without overexposure to any single industry.

Foolish takeaway

Before making any investment decision, it’s always wise to conduct thorough research and ensure that your choices align with your financial goals. Consulting with a financial advisor can also provide valuable insights, especially when structuring a portfolio designed for long-term passive income. The key is to focus on companies with strong fundamentals and a proven track record of rewarding shareholders. So how much could a $20,000 investment in First National create in monthly income?

COMPANY	RECENT PRICE	NUMBER OF SHARES	DIVIDEND	TOTAL PAYOUT	FREQUENCY	TOTAL INVESTMENT
FN	$39.90	501	$2.50	$1,252.50	monthly	$20,000

First National Financial Corporation continues to stand out as a solid option for investors looking to maximize their TFSA’s income potential, especially when it offers $104.38 in monthly dividend income! Its reliable dividends, reasonable valuation, and positive growth outlook make it a compelling pick for those who want to enjoy tax-free passive income without taking on excessive risk. By investing in stocks like FN, TFSA holders can build a portfolio that delivers consistent, worry-free returns month after month.