The Tax-Free Savings Account (TFSA) is one of the best places for Canadians to build long-term wealth. It can also be an excellent place to build a recurring income stream, provided you pick the right monthly dividend stock.
Fortunately, there’s no shortage of options when it comes to picking a monthly dividend stock. One stock that stands out among others is SmartCentres REIT (TSX: SRU.UN). Here’s why it could be the perfect monthly dividend stock for your portfolio.
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Understanding the business
SmartCentres is one of the larger Canadian REITs. The company has a portfolio of mixed-use properties and shopping centres across the country, primarily around major metro markets.
The properties are typically anchored by major retailers, and in many cases, the anchor tenant is Walmart. That helps separate SmartCentres from riskier retail real estate. That’s because these properties are often tied to everyday shopping needs rather than purely discretionary spending.
The emphasis on everyday shopping needs provides a major traffic boost to those properties. This, in turn, helps support rent collection, cash flow, and, by extension, the monthly distribution.
In addition to the anchor tenants, the properties often have smaller, secondary tenants that help to generate their own foot traffic and rent. Those secondary businesses can be anything from restaurants and small retail to banks, pharmacies, and doctors’ offices.
SmartCentres’ portfolio leans toward the types of retail locations people still use regularly, including essential services and everyday shopping needs.
This gives the REIT a defensive moat over other retail-focused REITs and allows it to persist across different economic cycles.
For TFSA investors, that’s a major advantage. SmartCentres offers a diversified revenue base, steady rental income, room for long-term growth, and an attractive monthly distribution.
The yield adds TFSA cash flow
The real reason why SmartCentres is appealing as a monthly dividend stock is because of that monthly payout. As of the time of writing, SmartCentres offers a yield of 6.2%. For investors searching for a Canadian REIT that can provide regular TFSA income, that combination of monthly payments and a 6% yield is hard to ignore.
This means that a $10,000 investment in SmartCentres would generate just over $600 in annual income. To be clear, that’s not enough to retire on. It is, however, enough to generate 20 new units in the first year from reinvestments alone.
Prospective investors should note here that within a TFSA, those distributions remain tax-free. This means that if left to compound, that seed investment can grow to a substantial income stream over a longer period.
That’s where the monthly payout becomes more than just a yield. It gives TFSA investors a repeatable cash-flow engine that can supplement income or buy more units over time.
SmartCentres is the perfect monthly dividend stock
SmartCentres aligns best with long-term TFSA investors who prefer steady income over fast growth. Instead of growth, the REIT offers investors a high-yielding monthly payout of over 6%. That’s in addition to the exposure to the Canadian real estate sector it provides.
Perhaps more importantly, SmartCentres offers diversification from the usual suspects found in every portfolio. That includes the big bank stocks, pipelines, telecoms, and utility stocks.
That shift can be advantageous for investors looking to build their TFSA portfolio on recurring income from a monthly dividend stock.
In my opinion, SmartCentres should be a core part of any well-diversified, income-focused portfolio. That’s especially true for TFSA investors seeking monthly cash flow without chasing an unsustainably high yield.
