How I’d Secure $160 Tax-Free Monthly Income With a $15,000 Investment

Canadians have plenty of taxes to contend with between federal and provincial taxes, leaving them looking for ways to get the most returns out of any savings they have. Leaving your savings sitting idly as cash inside a high-interest savings account might get you some returns. However, the inflation makes that only a little better than stashing the cash away under a mattress.

The interest income from these accounts simply cannot keep pace with inflation. There is a better way to use that money to get better returns, and that’s by contributing to a self-directed and tax-free passive-income stream. How? You can do this by using your Tax-Free Savings Account (TFSA).

TFSA investing for passive income

The TFSA has been a blessing for Canadians since its inception in 2009. The name suggests that it’s a savings account, but Foolish Canadians know better than to use it like that. A TFSA lets earnings from assets in the account grow without incurring any taxes. Naturally, that would mean any interest earned on cash inside the account will grow tax-free. However, there is a better way to use the account.

Instead of using it as a savings account, you can use it as an investment vehicle. The TFSA can hold more than just cash. You can also use it to hold equity securities. Allocating a portion of your TFSA to hold a portfolio of equity securities like high-yield dividend stocks can be the perfect strategy to earn much more in passive income than with interest.

A well-balanced portfolio of high-quality dividend stocks can deliver far better returns than interest income. The best dividend stocks also keep increasing payouts to investors over time, helping their passive income streams keep pace with and even beat inflation.

However, not all dividend stocks are the same. When investing in dividend stocks, it’s important to seek stocks with underlying companies that have excellent track records for paying distributions to shareholders and increasing payouts regularly.

A blue-chip Canadian dividend stock

Canadian blue-chip stocks are well-established companies, typically leaders in their respective industries, that boast excellent track records regarding dividends and long-term overall returns to investors. BCE (TSX: BCE) is a stock from the Canadian telecom sector that you can consider for your self-directed portfolio for this purpose.

BCE is a $26.80 billion market-cap Canadian wireless and internet service provider. It’s one of the country’s three largest national carriers, boasting over 10 million customers, and it has around a third of the market share in Canada. The company also has a sizeable media segment with television, digital media, and radio assets that further diversify its revenue streams.

The company has been around for a while and has the kind of economic moat to ride the waves of uncertainty in the economy. The last three months of 2024 saw the company report that its net earnings attributable to common shareholders increased by a fifth on a year-over-year basis. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also increased by 1.5%.

Foolish takeaway

The stock has a reputation for paying out dividends to its shareholders. As of this writing, it trades for $29.38 per share and boasts a juicy 13.58% annualized dividend yield. If you’re looking for assets to build a self-directed and tax-free passive-income portfolio using a TFSA, BCE stock can set solid foundations for it.

While you must never put all your eggs in one basket, here’s a quick look at how a hypothetical $15,000 worth of BCE shares held in a TFSA can deliver almost $170 in monthly passive income that the Canada Revenue Agency (CRA) cannot tax.

*The monthly amount is calculated by multiplying the quarterly dividends by four, multiplying those by the number of shares to get the annualized total of dividends, and then dividing the annualized dividends by 12 to get the monthly amount.