The idea of $500 per month in tax-free passive income sounds exciting. But to achieve that goal, you either need a $90,000 portfolio earning 7% annual yield or a $50,000 portfolio earning a 12% annual yield. These figures might shock you when seen in totality. But a 12% yield or a $90,000 portfolio is not that difficult to achieve. All you need is disciplined investing in a Tax-Free Savings Account (TFSA).
Getty Images
How to earn $500 per month in a TFSA
If you are closer to retirement and have a sizeable TFSA portfolio, consider investing $45,000 to $46,000 in Cogeco Communications (TSX: CCA) and Slate Grocery REIT (TSX: SGR.UN). They both offer diversification across market cap, dividend policy, sector, and market exposure.
In the current market, the two stocks have a dividend yield above 6% and offer lower-risk dividends. Others with high yields have high risk. Cogeco’s yield is high because the stock price is trading near its 52-week low after competitive pricing in the telecom industry normalized. However, the company continues to grow its dividend because of its asset-light model. The dividend payout ratio is 30% of its free cash flow, which gives it flexibility to pay dividends.
Considering the 13 years of consistent dividend growth and quarterly payments, a $45,000 investment today can buy you 696 shares and pay $2,748 in annual dividends.
| Stock | Purchase price | Investment Amount | Number of shares purchased | Dividend per share | Annual Dividend Amount |
| SGR.UN | $17.34 | $46,000 | 2653 | $1.23 | $3,263.19 |
| CCA | $64.60 | $45,000 | 696 | $3.95 | $2,747.81 |
| Total | $6,011.00 | ||||
Slate Grocery REIT
Slate Grocery REIT is another fundamentally strong stock worth considering for TFSA dividend income. Its source of dividends is grocers such as Walmart and Kroger. With 115 properties located in 23 states of America and 94.4% occupancy ratio, Slate Grocery is well placed to pay consistent monthly dividends. Grocery stores are sticky and give a defensive source of income even in an economic crisis. Thus, you can be assured of dividend payouts in all economic conditions.
A $46,000 investment in Slate Grocery REIT now can buy you 2,653 units that can pay $3,263 in annual dividends. Together, Slate Grocery REIT and Cogeco can give you $6,011 in annual dividends, which converts to $500 a month. While $271.90 from the REIT will come in monthly payouts, $687 from the telco will come in quarterly payouts.
But what if you don’t have $91,000 to invest now? A $500 monthly TFSA payout can be built over time through regular investing.
How to build a $500 monthly income in a TFSA with growth stocks
The Canada Revenue Agency (CRA) allots a contribution limit on a TFSA every year. A 35-year-old Canadian who has never invested in a TFSA has contribution room of $109,000 accumulated since they turned 18. Unless you have been maxing out on your TFSA contributions every year, you have some contribution room above the 2026 limit. You can check your contribution room by logging onto My CRA account.
If you are new to investing in a TFSA, consider investing in growth stocks like Shopify or the iShares NASDAQ 100 Index ETF (CAD-Hedged). They can give 50% and 20% annual growth because of the high growth of the technology sector. The ETF can give you exposure to all companies across the artificial intelligence supply chain. You can review your portfolio every year in January and rebalance growth into the above dividend stocks.
Suppose you invest $3,000 each in Shopify and the XQQ ETF, and your TFSA portfolio grows to $4,500 and $3,600, respectively. You can consider selling Shopify shares worth $1,500, only booking the profit, and investing that money in dividend stocks. So while your $6,000 remains invested to capture future capital gains, the profit booked can be converted into dividends.
| Stock | Invested Amount | Portfolio in January | Rebalancing Amount |
| Shopify | $3,000.00 | $4,500.00 | $1,500.00 |
| XQQ ETF | $3,000.00 | $3,600.00 | $600.00 |
| $2,100.00 |
Reinvest dividends
You can also invest $200 every month in the two dividend stocks, which will add another $2,400 annually. To top it off, the dividend money you receive can be reinvested to buy more dividend stocks, compounding your investments. The initial years may see slow growth, but investments will accelerate from the seventh or tenth year. The process needs discipline and patience, but the outcome is rewarding.
