An 11% Monthly Passive-Income Stock I’d Put My Whole TFSA Contribution Into

Timbercreek’s +11% yield can turn a $7,000 TFSA contribution into about $65 a month, but the payout coverage is tight.

Key Points
  • A $7,000 TFSA contribution invested at an 11.1% yield targets roughly $65 in monthly, tax-free income.
  • Timbercreek earns that income by lending on commercial real estate, mostly with first mortgages, and paying monthly dividends.
  • The dividend used about 98.5% of recent distributable income, so property and credit risks could force a cut.

A Tax-Free Savings Account (TFSA) can become the rare bill that pays you every month. One annual contribution invested at an 11.1% yield could produce nearly $65 in monthly income, which is enough to handle a streaming habit and still leave something for snacks.

Blocks conceptualizing Canada's Tax Free Savings Account

Source: Getty Images

Before you begin

The 2026 TFSA contribution limit is $7,000, although Canadians with unused room may contribute more. Unused room carries forward, while withdrawals generally return as new contribution room the following calendar year.

Investors should confirm personal room before contributing because excess amounts face a 1% monthly tax. Once the money is inside a TFSA, investment income and capital gains can generally grow tax-free, and withdrawals won’t normally reduce federal income-tested benefits.

A large monthly yield still requires inspection before anyone starts mentally spending it. Investors should examine dividend coverage, the source of the cash flow, and the possibility of losing capital. After all, receiving $65 while the investment falls $200 isn’t passive-income wizardry.

Consider TF

Timbercreek Financial (TSX: TF) is a mortgage investment corporation and alternative commercial real estate lender. It provides shorter-term financing to property owners who need faster execution or more flexible terms than traditional banks may offer.

Borrowers pay interest and lender fees; Timbercreek stock covers its financing and operating costs, and much of the remaining income reaches shareholders through monthly dividends. The current payment is $0.0575 per share, or $0.69 annually, coming to that 11.1% yield.

The company’s $1.24 billion mortgage portfolio is secured by income-producing real estate, primarily in Canadian urban markets. Approximately 94.7% of the portfolio consisted of first mortgages at the end of the first quarter, giving Timbercreek stock a stronger claim on the underlying property if a borrower runs into trouble.

Management also sees a strong transaction pipeline as commercial real estate activity recovers. Second-quarter results arrive July 29, giving investors an immediate opportunity to see whether new lending demand is supporting earnings and dividend coverage.

Considerations

At a recent price of $6.19, a $7,000 TFSA contribution would purchase 1,130 full shares and leave $5.30 uninvested. The position would generate approximately $779.70 annually, or $64.98 per month.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
TF$6.191,130$0.69$779.70Monthly$6,994.70

Reinvesting the payments at the same price could purchase roughly 125 additional shares during the first year. Those shares would begin producing their own dividends, allowing the monthly income to compound without inviting the CRA to dinner.

The dividend consumed 98.5% of first-quarter distributable income, up from 92.8% one year earlier. That leaves little room for weaker lending income, rising funding costs, or additional credit losses. Falling property values and borrower defaults could also reduce recoveries, while dividends aren’t guaranteed.

Bottom line

I’d therefore invest an entire annual contribution in Timbercreek only if the rest of my TFSA already contained diversified Canadian dividend stocks. If management improves coverage while converting its pipeline into profitable loans, today’s unusually high yield could build a much larger monthly paycheque before the share price finally catches up.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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