Finding the “perfect” Canadian dividend stock to buy in a Tax-Free Savings Account (TFSA) is a deeply personal quest. The right choice must align with your unique income needs, risk tolerance, intended holding period, and personal tax situation. However, when an investment establishes a reliable track record of delivering exactly as expected, it can quickly find broad appeal among thousands of retail investors.
If you are looking for a steady monthly passive income stream that compounds in your TFSA, Boston Pizza Royalties Income Fund (TSX:BPF.UN) deserves your attention.
Source: Getty Images
A 6.4% distribution yield built on consistent paycheques
Boston Pizza Royalties Income Fund operates under a simple and lucrative business model: it collects top-line royalty income from Boston Pizza based on franchise sales across its extensive casual dining restaurant chain.
The fund’s distribution mandate is highly attractive for income-seeking investors. The fund is structured to distribute all available operational cash to unitholders to the maximum extent possible. Following a crisp 3.3% distribution increase in April, the fund now pays out a monthly distribution of $0.12 per unit, which translates to a juicy 6.4% annualized yield.
Since its Initial Public Offering (IPO) in 2002, the fund has delivered 280 regular monthly income distributions. On top of that, it has rewarded patient unitholders with four special distributions since the pandemic.
BPF.UN Dividend data by YCharts
A TFSA income stock with an operational growth recipe
A common concern with high-yielding income funds is sustainability. During the first quarter of 2026, the fund paid out 101.6% of its distributable cash flow, while retaining a comfortable $3.8 million in cash heading into the second quarter. While payout ratios naturally fluctuate from quarter to quarter, the trustees’ decision to raise the payout in April signals immense internal confidence that future cash flows will comfortably support these higher distributions.
The business’s underlying metrics back up this bullish outlook, given growing cash flow, strong same store sales, and rising distributable income.
Cash flow is growing. Cash flow received from operations increased by 3.5% year-over-year (YoY) during the first quarter of 2026.
Further, same-store sales, the primary driver of distribution growth, rose by 3.1% last quarter, building on top of a 4.1% expansion from the previous year. This positive momentum added an extra $7.3 million to franchise sales year-over-year.
The income fund’s distributable cash flow reached $7.5 million last quarter, achieving a consistent 2.9% year-over-year growth rate.
Even though the fund’s royalty pool has compressed from 390 locations in pre-pandemic 2019 to 372 restaurants today, overall system performance has soared. Total franchise sales increased from $853.7 million in 2019 to $976.3 million in 2025. Driven by this sustained growth, sales are well on their way to exceeding the $1 billion mark over the next 12 months, promising even more distributable income for the fund.
Why should you locate this income fund in a TFSA?
Why is a TFSA the absolute ideal home for this 6.4% yielder? It all comes down to the tax treatment of its monthly cash distributions.
The fund’s monthly payouts are split into two tax categories: a tax-deferred return of capital (RoC) and taxable income.
Roughly 10.8% of the distributions over the past year fell into the RoC basket, allowing investors to reduce their cost basis on BPF.UN units and proportionately defer income taxes.
The remaining 89.2% of the 2025 monthly paycheques was fully classified as taxable income.
If you hold BPF.UN units in a standard, non-registered account, the Canada Revenue Agency (CRA) may tax nearly 90% of your distributions at your marginal personal income tax rate.
By stashing this cash-generating machine inside a tax-sheltered TFSA, you completely shield that 90% taxable portion of your Boston Pizza distributions from taxes — forever.
Investor takeaway
Boston Pizza Royalties Income Fund serves up a compelling combination of historical consistency, reliability, steady top-line growth, and excellent tax optimization opportunities for TFSA investors looking to generate reliable, high-yielding passive income.
