How to Use Your TFSA to Earn $113 Per Month in Tax-Free Income

A Tax-Free Savings Account (TFSA) could be your best friend to generate tax-free income. It allows Canadians to earn income and capital gains completely tax-free. This makes it attractive for income-focused investors who want to grow their money without worrying about tax drag. Thus, by investing in top Canadian dividend stocks with fundamentally strong businesses, monthly distributions, and sustainable payouts, you can transform your TFSA into a passive income-generating machine.

Here’s an example of how using the TFSA can help you earn over $113 monthly in tax-free income.

Monthly income stock #1

Investors seeking tax-free monthly income could consider adding SmartCentres REIT (TSX: SRU.UN) to their TFSA portfolio. This real estate investment trust (REIT) pays a monthly dividend, which can be relied upon. Its defensive portfolio of high-quality assets consistently generates solid net operating income (NOI) that drives its monthly payouts.

Its diversified real estate portfolio, anchored by core retail shopping centres, adds stability to its financials across all economic cycles and supports its payouts. The REIT pays a monthly dividend of $0.154 per share, which equals an impressive yield of 7.1% based on its closing price of $25.94 on May 16.

SmartCentres’ resilient real estate portfolio continues to witness solid tenant demand, which will drive future retention rates and leasing activity. Further, high occupancy and cash collection rates from its core retail properties have led to increased rental income.

In addition, SmartCentres’s focus on diversifying its portfolio will support long-term growth. Looking ahead, long-term leases, high demand, mixed-use developments, and its substantial land bank position it well to generate substantial same-property NOI and support monthly payouts.

Monthly income stock #2

First National (TSX: FN) is another compelling dividend stock paying a monthly dividend. FN stock consistently pays and even increases its monthly dividend payments. Moreover, it offers a high yield near the current market price, making it a compelling income stock.

First National operates as a non-bank mortgage lender, financing residential and commercial mortgages through a network of independent brokers. Its mortgage book is conservatively managed, focusing on low-risk loans that limit credit exposure. This disciplined approach provides the company with stable, recurring income and allows it to maintain its dividend.

On the residential side, the company benefits from recurring cash flow through mortgage placement, securitization, and servicing activities. It helps expand its portfolio and reduce servicing costs per loan, increasing efficiency and long-term profitability. On the commercial side, the lender’s scale and reputation position it to benefit from cross-market referrals and ongoing demand for housing-related financing.

First National remains optimistic and expects strong growth in single-family originations, supported by a healthy pipeline of deals. On the commercial front, volumes are projected to hold steady, aided by supportive government housing policies and anticipated rate cuts from the Bank of Canada.

The company’s $107 billion mortgage servicing portfolio and $45 billion in securitized mortgages provide a robust foundation for continued earnings growth and will support its payouts.

Earn $113 per month in tax-free income

SmartCentres REIT and First National are dependable dividend stocks to add to your TFSA portfolio to generate a tax-free income. The table below shows that a $10,000 investment in each of these two stocks can help you earn over $113 per month in tax-free income.