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

The Bank of Canada has lowered its benchmark interest rates five times in a row to 2.75%. Amid falling interest rates, investors should look at accumulating high-quality monthly paying dividend stocks to earn a stable passive income. If you invest around $29,000 in each of the following three stocks, you can earn over $500 monthly. Meanwhile, you can avoid paying taxes if you make these investments through your TFSA (tax-free savings account).  

SmartCentres Real Estate Investment Trust

SmartCentres Real Estate Investment Trust (TSX:SRU.UN) operates around 195 properties across Canada, with a total income-producing area of 35.3 million square feet. In the fourth quarter, the company leased 192,353 square feet of vacant space, thus improving its occupancy rate by 20 basis points to 98.7%. Also, it renewed 91% of the leases maturing by the end of last year with a rental growth rate of 8.8%. Boosted by this solid operating performance, its net rental income and other grew 10.2% during the fourth quarter, while its adjusted FFO (funds from operations) rose by 9.8%.

Moreover, SmartCentres has a solid developmental pipeline with 58.1 million square feet of developmental approvals and one million square feet of properties under construction. Along with these developmental activities, its improving operating performance could continue to drive its financials, thus facilitating its future dividend payouts. It currently offers a monthly dividend payout of $0.1542/share, translating into a forward yield of 7.3%.

NorthWest Healthcare Properties REIT

NorthWest Healthcare Properties REIT (TSX:NWH.UN) owns and manages 172 healthcare properties with 15.9 million square feet of gross leasable area across seven countries. It has signed long-term lease agreements (13.6 years of weighted average lease expiry) with government-backed tenants, thus enjoying healthy occupancy and collection rates. Its occupancy rate stood at 96% in the fourth quarter, marking an above-96% occupancy rate for eight consecutive quarters.

Further, it sold around $1.4 billion of non-core assets, utilizing the net proceeds to pay off $1.1 billion of debt, thus lowering its net debt levels. The healthcare REIT also refinanced $1 billion of debt and has renewed around 80% of expiring leases at higher rates. Besides, the company received an investment-grade credit rating last month, which would lower its borrowing cost. Considering its healthy occupancy rate and improving financial position, NorthWest Healthcare could continue paying dividends at a healthier rate. Its forward dividend yield currently stands at 7.2%, making it an excellent buy.

Pizza Pizza Royalty

Another stock that I am bullish on is Pizza Pizza Royalty (TSX:PZA), which offers an attractive forward dividend yield of 6.8%. The company’s royalty pool comprises 694 Pizza Pizza and 100 Pizza 73 brand restaurants. The company operates most of its restaurants through franchises, collecting royalties based on their sales. So, rising commodity prices and operating expenses will not impact its financials. Given its asset-light business model, the company generates stable and predictable cash flows.

Moreover, at the beginning of this year, PZA added 45 new restaurants to its royalty pool and removed 20 restaurants that had closed their operations. The company also expects its menu expansion, value propositions, and improvement in dine-in and digital experiences to drive its same-store sales growth in the coming quarters. These growth initiatives could support its financial growth and allow it to pay dividends at a healthy rate. Meanwhile, PZA currently pays a monthly dividend of $0.0775/share, translating into a forward dividend yield of 6.8%.