A Simple Way for Canadians to Earn $500 a Month Tax-Free From a TFSA

Generating passive income has become increasingly important amid economic uncertainty, persistent inflationary pressures, geopolitical risks, and rapid technological change. One of the most effective ways to build a steady, reliable income stream is to invest in high-quality dividend stocks that pay monthly dividends.

A $104,000 investment split equally among the following two monthly-paying stocks could generate more than $500 in passive income per month based on their current yields. Investors can also enhance their after-tax returns by making these investments through their Tax-Free Savings Account (TFSA), where investors earn tax-free dividends and capital gains. For Canadians who were 18 or older in 2009 and have yet to start their investment journey through their TFSA, the cumulative contribution room currently stands at $109,000.

With that in mind, let’s take a closer look at these three monthly-income stocks.

SmartCentres Real Estate Investment Trust

SmartCentres Real Estate Investment Trust (TSX:SRU.UN) is an attractive monthly-paying dividend stock for income-focused investors, supported by its portfolio of strategically located properties and high-quality tenant base. The REIT owns and operates approximately 200 properties across Canada, with around 90% of Canadians living within 10 kilometres of a SmartCentres location. In addition, about 95% of its tenants have regional or national operations, while roughly 60% provide essential goods and services.

These strengths help SmartCentres maintain high occupancy levels across varying economic conditions, thereby supporting stable, predictable cash flows. As a result, the REIT can reward investors with attractive monthly distributions. The REIT’s current monthly distribution of $0.15 per unit yields 6.1%.

Looking ahead, SmartCentres is well-positioned to benefit from resilient demand for Canadian retail space, supported by population growth, healthy consumer spending, and limited new supply due to elevated construction costs. To capitalize on these trends, the REIT currently has 0.8 million square feet of space under construction and an extensive long-term development pipeline totalling approximately 87 million square feet. Combined with ongoing lease-up activity and rising rental rates, these projects should support future earnings and cash flow growth, strengthening SmartCentres’ ability to continue delivering attractive monthly income to investors.

Peyto Exploration & Development

Another monthly dividend-paying stock I am bullish on is Peyto Exploration & Development (TSX:PEY), which predominantly operates in Alberta’s Deep Basin, producing natural gas and natural gas liquids. The company’s track record of value creation is impressive, with average returns on capital employed (ROCE) and return on equity (ROE) of 17% and 24%, respectively, over the past 27 years.

Although energy prices have moderated recently, the natural gas market continues to benefit from supportive supply-and-demand dynamics. Production growth is expected to occur gradually, while seasonal demand and transportation constraints could help keep prices at favourable levels. Given its low-cost operations and disciplined capital allocation, Peyto is well-positioned to capitalize on these conditions and maintain healthy cash flow.

The company also benefits from a substantial resource base, ending last year with 1.5 billion barrels of oil equivalent in proved reserves. In addition, Peyto continues to strengthen its production capabilities through strategic investments. During the first quarter, it invested $150.5 million to drill 23 wells and acquire interests in 21 additional wells, supporting future production growth.

Given its high-quality asset base, strong operational track record, and ongoing investment in growth opportunities, Peyto appears well-positioned to continue generating robust cash flows and rewarding shareholders with attractive monthly dividends in the years ahead. Currently, it pays a monthly payout of $0.12 per share, translating into a forward yield of 5.8%.