As it turns out, your TFSA (Tax-Free Savings Account) is actually quite the potent passive income generator, and, in this piece, we’ll look at just how far one can stretch the yield (without risking one’s shirt on a stock that’s nosediving endlessly) to help alleviate the inflationary pressure that’s likely about to come for our monthly budgets.
Of course, if you’re looking to max out that yield while taking on a considerable amount of risk (not recommended if you’re a retiree who would be put into a panic if they were to lose 10–30% in a short-term timespan), there are far more enticing investments out there. Canadian yield chasers have so many options to pick from, with double-digit percentage yields that trade off capital upside for a heightened monthly payout.
While I do think covered call ETFs make a lot of sense for most investors who are comfortable with the trade-off and the realization that their total returns won’t be substantially above the market averages (in fact, one can expect to come up short of the averages over the long run when you throw management expense ratios into the equation), I do find that growth still matters, even for those who want to shift a bit more towards the income side of things.
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Insist on more than yield
In short, as a TFSA investor, I’d look to pursue a bit more yield, but not at the cost of high fees and inferior total returns. That is, unless you’re willing to take a risk or believe that the TSX Index could be going sideways to lower after more than a year of pretty smooth capital appreciation. While valuations might be heightened, I still don’t think it makes much sense to predict the trajectory in the next year, especially given Canada’s role in the AI race and how much of the productivity benefits could power corporate earnings with less relative spend.
Indeed, if token costs are going down and more firms adopt AI tech to save on operations, perhaps it is worth paying a premium for the broad basket of Canadian stocks, especially the ones firing on all cylinders within the sectors of energy and financials.
CT REIT
In any case, beginner investors looking to do better than the 2–3% or so on GICs or the sub-1% interest rate on savings might be best served by looking into the REIT scene. For instance, CT REIT (TSX: CRT.UN) stands out as a steady income generator, thanks in part to its big tenant in Canadian Tire (TSX: CTC.A).
Of course, CT REIT isn’t the most diversified retail-centric REIT in the world, but, in my view, that’s a good thing, especially if you’re a fan of the staying power of Canadian Tire. In prior pieces, I referred to CT REIT as a better way to ride on the back of Canadian Tire. You’ll get more income for it without having to worry about the state of the consumer in any given quarter. Also, Canadian Tire’s strong balance sheet made CT REIT a sleep-easier kind of play.
Of course, in a bull-case scenario with the consumer, CTC.A stock could crush CT REIT. But given the trajectory of inflation and the implications of tariffs and higher oil prices, I’d much rather be in the property play behind the retailer than the retailer itself!
Perhaps it’s no mystery why CRT.UN shares (up 9%) are beating Canadian Tire (up 3%) shares over the past five years on the front of capital gains, but especially when it comes to total returns, given CRT.UN’s fatter 5.2% yield, which basically amounts to $500 per year or $41 and change monthly. Not a game-changing amount of income, but decent enough to show you the power of TFSA income investing.
