The Tax-Free Savings Account (TFSA) is anything but a savings account in my books. Savvier and seasoned stock market investors consider it an excellent investment vehicle that can house a self-directed portfolio that fuels tax-free wealth growth. Investors seeking consistent, tax-free income can leverage the account’s tax-sheltered status to achieve their financial goals with a leg up over those who only stick to taxable accounts.
While you can use the contribution room in a TFSA to hold cash and generate tax-free interest income, it would be a wasted opportunity. Interest rates are typically lower than inflation, and that means your account balance’s growth might still result in a cumulative loss compared to your buying power.
Returns on investments that beat inflation are the real key to significant growth. Monthly dividend stocks can be ideal for this purpose. Eventually, you can grow your TFSA portfolio to a size where you can withdraw dividends to supplement your income without worrying about moving to a higher tax bracket. Today, I will discuss a high-yielding dividend stock you can consider for this purpose.
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Slate Grocery REIT
Slate Grocery REIT (TSX: SGR.UN) is technically not a stock. Rather, it is a Real Estate Investment Trust (REIT), a way to get real estate exposure without the operational burden and the hassles that come with owning investment properties. These REITs trade on the TSX like stocks, providing returns to investors in the form of monthly distributions that are like rental income.
Slate Grocery is an attractive pick among its peers on the TSX for the TFSA due to the combination of monthly income, high-yielding returns, and growth potential it offers.
Slate is a $1 billion market-cap REIT that owns and operates a sizeable portfolio of grocery-anchored real estate. With properties built around retailers selling essential items, the essential nature of the tenants’ business gives Slate Grocery a uniquely defensive appeal.
When times are tough, food and household necessities are not even the last things that people will let go of to save costs. While having a strong tenant base focused on essential items does not make Slate Grocery REIT immune from risk, it makes the trust a more defensive investment for a TFSA. Within a TFSA, growth from capital appreciation, regular contributions, and reinvested distributions can accelerate the growth of your portfolio and compound tax-free.
Slate also has an easy-to-understand business. It owns properties and rents the spaces to tenants. When its tenants pay rent, Slate can fund operations and use most of the rental income to pay monthly distributions to investors who can enjoy that passive income as lazy landlords.
Foolish takeaway
The monthly distributions from Slate Grocery REIT are perhaps the biggest reason to consider adding the REIT to your self-directed portfolio. SGR.UN pays investors US$0.072 per unit each month, translating to a roughly 7% annualized dividend yield. Supported by high occupancy rates and a solid tenant base, these monthly distributions are relatively safe returns you can count on to grow a TFSA.
Reinvesting distributions allows you to unlock the power of compounding and significantly grow your wealth. I think Slate Grocery REIT can be a compelling TFSA holding in a well-diversified portfolio.
