How to Use Your TFSA to Earn $500 Per Month in Tax-Free Income

Since June last year, the Bank of Canada has cut interest rates six times to lower its overnight interest rate from 5% to 3%. So, amid falling interest rates, investors should look to invest in quality monthly paying dividend stocks to earn a stable passive income. Meanwhile, you can avoid taxes on these dividend payouts by investing through your TFSAs (tax-free savings accounts).

The cumulative contribution room for Canadians aged 18 years and above in 2009 is $102,000. So, if you invest around $90,000 (within the cumulative contribution limit) in the following three monthly paying dividend stocks, you can earn over $500 monthly tax-free. Let’s look at these three stocks in detail.

SmartCentres Real Estate Investment Trust

SmartCentres Real Estate Investment Trust (TSX:SRU.UN) owns and operates 195 properties with a gross leasable area of 35.3 million square feet. Last week, the company reported an impressive fourth-quarter performance, leasing 192,353 square feet and raising its occupancy rate to 98.7%. Amid growing demand for retail space, net operating income for the same property rose by 6%. The REIT also renewed around 91% of the leases maturing at the end of last year through solid rental growth of 8.8%. Amid this solid operating performance, net rental income and others grew by 10.2% to $141.6 million.

Moreover, SmartCentres REIT has municipal approvals to develop 59.1 million square feet of site, with around 1 million square feet under construction. These developmental projects offer long-term growth prospects for the company. Besides, its healthy collection rate and high-quality tenant base offer stability to its cash flows, allowing it to pay dividends at a healthier rate. The Toronto-based REIT currently pays a monthly dividend of $0.1542/share, translating into a forward dividend yield of 7.2%.

Sienna Senior Living

Sienna Senior Living (TSX:SIA) is another excellent stock to boost your monthly passive income due to its stable cash flows and high yields. The company offers senior citizens a full range of services, with assets in Ontario, Alberta, Saskatchewan, and British Columbia. With the rising aging population and increasing income levels, the demand for its services is rising.

The company reported a 12.5% increase in its total adjusted revenue to $224.8 million in the third quarter that ended in September. Higher occupancy rates, increased annual rental rates, care and ancillary revenue growth, and government funding for direct care boosted its topline. Further, its total adjusted net operating income rose 14.8% to $43.4 million, while its operating funds from operations per share increased by 13.5% to $0.312.

Moreover, SIA continues to expand its footprint by recently acquiring a continuing care portfolio in Alberta for $181.6 million. It has also raised around $294 million by issuing additional shares and unsecured debentures. The company plans to utilize the net proceeds from these fundraisings to fund its growth initiatives and refinance unsecured debentures that matured in November last year. Considering the demand growth and its expansion activities, SIA’s future dividend payouts are safe. Meanwhile, it currently offers a monthly dividend of $0.078/share, translating into a healthy forward dividend yield of 5.9%.

Whitecap Resources

Given its high dividend yield and healthy growth prospects, I have chosen Whitecap Resources (TSX:WCP) as my final pick. The oil and natural gas producer expects its 2024 average total production to come in at 174,255 boe/d (barrels of oil equivalent per day), 5% higher than its original guidance of 165,000 boe/d. Also, its 2024 production guidance represents 11.3% year-over-year growth.

Further, the company’s management expects to strengthen its production capabilities by investing $1.1–1.3 billion this year. Meanwhile, the company’s management projects its average total output in 2025 to grow by over 2% to 178,000 boe/d and could increase to 275,000 in the next 10 years. Given its production growth prospects and healthier oil and natural gas prices, I believe WCP is well-equipped to continue paying dividends at attractive rates. With a monthly dividend payout of $0.0608/share, WCP currently offers a juicy forward dividend yield of 7.4%, making it an attractive buy.