TFSA Blueprint: Positioning $14,000 for Cash Flow

Sitting on $14,000 TFSA room? Put it to work for monthly income with RioCan, Exchange Income, and Timbercreek for balanced yield, growth, and a bit of risk.

Key Points
  • RioCan REIT provides steady monthly income with 97.5% occupancy and a 60% payout ratio, though keep an eye on leverage.
  • Exchange Income shows strong free cash flow and recent results, but its roughly 100% payout leaves little cushion for shocks.
  • Timbercreek Financial yields about 9% but high payout risk makes it speculative, use a smaller allocation and dollar‑cost averaging.

So you took the last two years to save, did you? That would make sense, with inflation and interest rates high many Canadians may have started to put cash aside at the risk of needing it in the near future. Yet today, those interest rates are coming back down, with the Bank of Canada announcing a 2.5% rate most recently.

Therefore, investors may be considering investing once again, and a Tax-Free Savings Account (TFSA) is the best way to go for it! You get tax-free income and returns when keeping to your contribution limits, and ongoing growth that lasts. So today, let’s look at some options for positioning your $14,000 for ultimate cash flow.

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.

Source: Getty Images

First steps

Before you even buy, investors will need to confirm how much TFSA contribution room they have. If you stood by the last two years, then you’ll likely have $14,000 in contribution room as the last two years added $7,000 each year.

You’ll then want to decide your objective. Are you looking for steady cash now to take out distributions? Or are you looking to grow your TFSA to meet a goal and withdraw later? These withdrawals are tax-free, but withdrawn room is only restored the next calendar year. So make sure you’re clear on what your goal might be.

Once you have those ideas in mind, investors can place market or limit orders on their investments. In fact, consider staggering your buys through dollar-cost averaging over a few weeks to reduce timing risk. Furthermore, investors can enrol in dividend reinvestment plans (DRIP) if you don’t need the cash, where dividends automatically buy fractional or whole shares inside your TFSA. And remember, always keep a cash buffer of 1% to 3% in your portfolio for any opportunities or to avoid forced selling for monthly needs.

What to consider buying

Today, investors might want to consider buying RioCan REIT (TSX: REI.UN), Timbercreek Financial (TSX: TF), and Exchange Income (TSX: EIF). These are monthly producing dividend stocks with steady dividends for solid income growth. A balanced approach for moderate risk and a steady yield might be 50% in REI, 30% in EIF, and 20% in TF. Here’s why.

REI has strong leasing momentum with occupancy at 97.5%. Its funds from operations (FFO) continue to grow, with a payout ratio at just 60%. However, keep an eye on its leverage, but overall it’s doing well with interest rates coming down. EIF meanwhile is coming off record results, with solid free cash flow (FCF) momentum. However, it holds a payout of around 100%, so there’s a limited cushion. Still its recent Canadian North acquisition could provide future income.

Then there’s TF, with a high yield of about 9%, yet with a payout that’s quite high. This could put pressure on distributable income. So for TF, this is more of a speculative play, one that can provide solid growth and huge income, but with the risk of a cut. Therefore, make sure to rebalance regularly, as mentioned.

Bottom line

With that allocation of your $14,000, investors get a balanced approach to funding monthly bills, or saving towards the future. In fact, here’s what it might look like.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDEND TOTAL PAYOUT FREQUENCYTOTAL INVESTMENT
REI.UN$18.82371$1.16$430.36Monthly$6,982.22
EIF$72.1458$2.64$153.12Monthly$4,184.12
TF$7.60368$0.69$253.92Monthly$2,796.80

Overall, these dividend stocks are solid investments that can be a superb choice within a TFSA, especially through dollar-cost averaging and a DRIP program. Yet as always, make sure to discuss any investment decisions with your financial advisor.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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