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

Amid rising geopolitical tensions, persistent inflationary pressures, and uncertainty surrounding the broader adoption of artificial intelligence (AI), building a reliable passive income stream has become increasingly important. One of the most convenient and cost-effective ways to achieve this is to invest in dividend-paying stocks, which offer the potential for both regular income and long-term capital appreciation.

A $100,000 investment split equally between the following two monthly dividend stocks could generate more than $500 in monthly passive income. Investors can further maximize their returns by making these investments through their Tax-Free Savings Account (TFSA), where both dividend income and capital gains grow tax-free. For 2026, the Canada Revenue Agency has set the TFSA contribution limit at $7,000, while the cumulative contribution room for eligible Canadians stands at $109,000. Against this backdrop, here are two top monthly dividend stocks to consider for boosting your passive income.

SmartCenters Real Estate Investment Trust

SmartCentres Real Estate Investment Trust (TSX:SRU.UN) is one of my top picks for income-seeking investors due to its reliable cash flows, resilient business model, and attractive dividend yield. The REIT owns and operates 200 strategically located properties, with nearly 90% of Canadians living within 10 kilometres of at least one of its locations. Its tenant base is also highly defensive, with 95% of tenants operating regionally or nationally and 60% operating in essential-service industries. As a result, SmartCentres maintains a healthy occupancy rate regardless of broader macroeconomic conditions.

Along with its high occupancy, SmartCentres’s steady lease-up activity and rising rental rates continue to generate stable, predictable cash flows that underpin its monthly distributions. The REIT currently pays a monthly distribution of $0.15 per unit, yielding an annualized rate of 6.2%.

Meanwhile, SmartCentres continues to expand its asset base to support future growth. It is constructing a 200,000-square-foot retail property that has been fully pre-leased to Canadian Tire and expects to provide possession this quarter. The REIT is also developing self-storage facilities in Quebec and British Columbia, with these projects expected to come online soon. In total, SmartCentres has approximately 0.8 million square feet of properties currently under construction.

Beyond these near-term projects, the REIT has approximately 87 million square feet of properties in various stages of planning and development. This extensive development pipeline provides a clear runway for long-term growth, supports sustained cash flow generation, and strengthens SmartCentres’ ability to continue rewarding investors with attractive monthly distributions, making it an excellent choice for income-focused investors.

Peyto Exploration & Development

Peyto Exploration & Development (TSX:PEY) is another monthly dividend stock that stands out for income-seeking investors. The Alberta-focused natural gas and natural gas liquids producer benefits from low-cost operations, a long-life reserve base, and disciplined capital allocation. Building on these strengths, the company has consistently generated impressive returns, with average return on capital employed (ROCE) and return on equity (ROE) at 17% and 24%, respectively, over the last 27 years.

Backed by its strong financial performance, Peyto has returned approximately $3.4 billion to shareholders through dividends since 1998. The company’s current monthly payout of $0.12 per share yields 6% on a forward basis.

Looking ahead, Peyto appears well-positioned to capitalize on favourable industry conditions. Renewed geopolitical tensions in the Middle East could support higher oil and natural gas prices, providing a tailwind for the company’s earnings and cash flows. Meanwhile, Peyto plans to invest between $540 million and $600 million this year to drill 70 to 80 net horizontal wells, strengthening its production capacity. The company also holds approximately 1.5 billion barrels of oil equivalent in proved and probable reserves, providing a solid foundation for long-term production and cash flow growth.

Given its consistent operational execution, disciplined capital allocation, healthy reserve base, and favourable industry outlook, I expect Peyto to continue generating strong free cash flow and reward shareholders with sustainable monthly dividend payments over the long term.