The best investments in a Tax-Free Savings Account (TFSA) for generating recurring income are dividend stocks. All dividends earned inside the account are tax-exempt, provided you follow the rules. Many Canadian companies pay dividends quarterly, while a few, including real estate investment trusts (REITs), pay monthly.
There’s no perfect investment, but a Canadian-based REIT focused on the U.S. market can be an ideal TFSA stock. Slate Grocery (TSX: SGR.UN) attracts income-oriented investors thanks to its monthly payout frequency and hefty yield. Today, the share price is $14.69, and the dividend yield is 8.19% ($1.20 annual dividend per share). With $14,000 in available TFSA contribution room, you can earn $95.55 in tax-free monthly income.
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Defensive asset class
Slate Grocery is a defensive holding owing to its nearly 100% grocery-anchored property portfolio in U.S. markets with strong demographics. Among the anchor tenants of this $868.6 million real estate investment trust are six of the top seven U.S. grocers, including American retail giants Kroger and Walmart. The REIT owns and operates 116 properties in 23 states.
The REIT believes that even in a weaker economy and the presence of e-commerce marketplaces, Americans will continue to rely on neighbourhood shopping centres for their day-to-day needs. In-store purchasing accounts for 89% of grocery sales. Slate forecasts online grocery sales to grow to 12.4% of total sales by 2027.
Favourable fundamentals
Necessity-driven tenants and national grocers consistently attract foot traffic regardless of economic cycles, which is an advantage for the REIT. More importantly, the fundamentals of the grocery sector remain favourable. High construction costs and tight lending conditions also hamper new retail development and availability.
According to Blair Welch, CEO of Slate Grocer, the constrained supply enables landlords to retain existing tenants and implement meaningful rate increases as lease contracts expire. However, Slate maintains below-market rents. The average in-place rent is $12.77 per square foot compared to the market average of $24.
Slate has significant room for continued rent increases, which should result in long-term income growth. Welch also notes that vacancy rates across the sector are historically low. At the end of the second quarter (Q2) of 2025, the portfolio occupancy rate is 94%. The portfolio weighted average lease term is 4.5 years.
Strong volumes and rental spreads
Slate’s rental revenue and net income in the first half of 2025 increased 1.7% and 5.6% year over year to US$105.5 million and US$29.2 million, respectively. Notably, the consecutive quarters of strong leasing volumes at attractive spreads continue to drive same-property net operating income growth. Q2 has also marked another consecutive quarter of double-digit renewal spreads. In the post-pandemic period, the average free cash flow from 2021 to 2024 is US$59.25 million versus US$37 million in 2020.
Dividend history
Slate Grocery prioritizes rental growth from below-market leases over aggressive expansion to ensure sustainable monthly distributions. However, Welch expects the robust pipeline of new leasing opportunities to support stable occupancy in the coming quarters.
Monthly paycheck
TFSA investors would be happy to know that this pure-play grocery-anchored REIT has not missed a monthly distribution since June 2014. By investing today, you’d have a perfect TFSA stock that converts your investment into a monthly paycheck.
