How to Set Up a $14,000 TFSA That Could Pay You Monthly for Life

The TFSA loaded with reliable monthly dividend stocks like these three can be a gift that keeps on giving more and more as time passes.

Key Points
  • A TFSA makes investment income and withdrawals tax-free, so holding monthly-dividend stocks there and reinvesting payouts can accelerate tax‑free compounding.
  • With $14,000 of TFSA room, the suggested split is $5,000 each in Granite Industrial REIT (GRT.UN) and Exchange Income (EIF) and the remainder in First Capital REIT (FCR.UN) to prioritize steady monthly income.
  • That allocation is estimated to produce about $39.85/month in tax‑free dividends today, with potential to grow by reinvesting dividends and adding future contribution room.

The Tax-Free Savings Account (TFSA) is, hands down, the perfect investment vehicle for Canadians. Any income you generate from investments held in a TFSA is tax-free. Whenever you withdraw an amount from the TFSA, it remains tax-free, and the amount gets added to the additional contribution room in the next update.

Allocating some room of the TFSA to hold a self-directed portfolio of monthly dividend stocks can help you turn it into a tax-free income machine. The more stocks you own, the more income you generate. If you take the income from monthly dividends and reinvest it through a dividend reinvestment plan, you can unlock the power of compounding to accelerate your tax-free wealth growth.

Let’s suppose you have $14,000 of available contribution room. Here is how I would allocate that amount among three monthly dividend-paying stocks.

man looks surprised at investment growth

Source: Getty Images

Granite Industrial REIT

Granite Industrial REIT (TSX: GRT.UN) is a stock I’d happily allocate around $5,000 to for generating monthly tax-free income. The real estate investment trust (REIT) has the kind of defensive qualities that make investors feel confident about investing for the long run. The REIT has an extensive portfolio of rock-solid institutional quality industrial properties across Canada, the U.S., and Europe.

Most of its tenants have long-term leases for the high-quality properties it offers. The trust boasts a modest payout ratio and historically high occupancy rates. Considering the fact that it has also increased its payouts 15 years in a row, it can be an excellent investment to compound your wealth growth in the long run. As of this writing, it trades for $92.48 per unit and pays investors $0.2958 per month per unit.

Exchange Income

Exchange Income Corp. (TSX: EIF) is another stock that I would allocate $5,000 to in my TFSA. The company is a diversified acquisition-focused company that targets the manufacturing and aerospace & aviation industries. Its disciplined approach to identifying already profitable and well-established businesses before investing in them gives it the defensive qualities I like in long-term holdings.

There is a growing interest in defence and infrastructure investments, particularly in the Arctic region. This development means Exchange Income has potentially substantial tailwinds readying up to fill its sails and propel it to greater heights. Its strategy has been successful over the years, and it has increased its payouts 18 years over the last two decades. As of this writing, it trades for $102.72 per share and pays investors $0.23 per unit each month.

First Capital REIT

First Capital REIT (TSX: FCR.UN) is another REIT, but it has a completely different focus than Granite. Instead of the industrial sector, it is oriented toward the retail sector of the economy, specifically the premium grocery segment. It has an extensive portfolio of retail-focused properties anchored by big names in the retail sector.

First Capital’s portfolio comprises properties in some of the best urban locations across Canada, the kind of places where top retailers want to have a presence. Its portfolio lets the trust generate substantial rent from properties with high occupancy rates. With the latest hike to its monthly payouts, it offers $0.076 per share. Considering that it trades for $23.59 per unit, it can deliver excellent returns.

Foolish takeaway

If you take a hypothetical $14,000, allocate $5,000 each to Granite REIT and Exhcange Income, and the rest to First Capital REIT, here’s what the monthly tax-free income might look. However, by reinvesting those dividends and allocating more when you get additional contribution room, you can generate even greater monthly returns to achieve your long-term financial goals much faster.

TickerRecent PriceNumber of SharesMonthly Dividends Per ShareTotal Dividends Per Month
GRT.UN$92.4854$0.2958$15.97
EIF$102.7248$0.23$11.04
FCR.UN$23.59169$0.076$12.84
Total Tax-Free Income Per Month $39.85

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends First Capital Real Estate Investment Trust and Granite Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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