I’d Put $50,000 in My TFSA to Collect $111 in Monthly Dividends

How much money could you collect from monthly dividends in a $50,000 TFSA?

Theoretically, quite a bit!

There are Canadian monthly pay stocks and REITs out there with yields above 5%.

That yield, paid monthly, could pay out $208 per month in a TFSA – and most Canadians over 30 can easily deposit $50,000 or more in a TFSA, given that the average level of past contributions is very low (source: StatCan). If you invested $50,000 in a security yielding exactly 5%, you’d get back $208.33 per month, as the table below illustrates:

So, with a hypothetical security yielding exactly 5%, you could easily get to $208 per month in your TFSA.

A more realistic goal

With all that being said, I think that something like $111 per month is probably a more realistic passive income goal. Five percent is far, far above average for the Toronto Stock Exchange (TSX) index today. To achieve a portfolio yield that high, you’d be holding back your diversification for sure, and increasing your risk most likely.

The good news is that a yield close to 3% can easily be attained on the TSX today. The index itself has a 2.2% or so yield; simply screen for dividend payers, and you end up with a portfolio approaching 3%. In this article, I’ll explore how you can easily get to $111 per month in monthly passive income in your TFSA, while having more than adequate diversification.

A fund that could produce $111 per month

A fund yielding 2.7% will pay about $111 per month if you invest $50,000 in it. The Vanguard FTSE Canadian Capped REIT Index ETF (TSX: VRE) is such a fund. Boasting a 3% trailing dividend yield, it has paid investors handsomely over the years. On a forward-looking basis, the yield looks more like 2.7%, as it has made some gains over the last 12 months

What is VRE, exactly?

VRE is a fund made up of Canadian REITs. It sports 19 holdings, which is an adequate amount of diversification as far as the narrow REIT space goes. It has a 0.39% expense ratio. VEE ETF basically owns pieces of Canada’s most important office buildings, residential apartments, and industrial spaces. Despite recent coolness in the housing and residential rental markets, Canadian real estate overall has some areas with growth potential, particularly office and industrial, which are connected to the nation’s data center buildout.

Canadian REITs have some of the highest yields of all asset classes in Canada. Partially, that’s because many types of real estate haven’t been seeing much price appreciation lately, but if it’s income you’re after, REITs have it.

Income potential

VRE’s dividend payments have been averaging about $0.07 per month lately. That works out to $0.89 per year. At today’s market price of $33.07, VRE therefore has a 2.7% dividend yield. If you invest $50,000 in it, you should get back $111.74 in monthly dividends, assuming no change to the payout.

So, VCE has the potential to produce considerable monthly dividend income. And it’s all tax-free if you hold it in a TFSA.