The Tax-Free Savings Account (TFSA) is one of the best tools Canadians have for generating investment income. Because withdrawals are tax-free, building a TFSA income stream won’t increase your taxable income.
Building that TFSA income stream to generate $800 per month may sound like a daunting ask, but it can be done. Investors just need to invest in the right stocks over time to build that recurring income stream.
For me, that $800 per month represents a tangible target that can make a huge difference. Here’s how I’d approach meeting that TFSA income goal with three investments.
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Step 1: Build the diversified income foundation
ETFs are some of the best ways to diversify a portfolio. For this TFSA income portfolio, I’d start with the iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI).
XEI is built around Canadian dividend-paying stocks. The ETF holds approximately 75 positions, which makes it a much more diversified option than owning an individual stock.
Those holdings include some of the largest and best-known Canadian stocks from sectors such as finance, industrials, telecoms, utilities and energy, to name just a few.
Turning to income, the ETF offers a yield of approximately 3.5%. That’s not the highest yield on the market, but it does provide a monthly distribution to investors.
Step #2: Add some reliable dividend growth
The next investment I would consider when building a portfolio for TFSA income is Enbridge (TSX:ENB). Enbridge is one of the larger energy infrastructure companies on the continent.
The company operates crude and natural gas pipeline networks, as well as a growing renewable energy operation and natural gas utility. Enbridge’s pipeline and utility assets generate predictable cash flow.
Given the sheer necessity of those businesses, Enbridge generates a recurring source of revenue that leaves room for growth investments while paying a handsome quarterly dividend.
As of the time of writing, the yield on that dividend works out to 5.4%. That higher yield helps move the portfolio closer to the $800-per-month goal.
Perhaps more importantly, prospective investors should note that Enbridge has provided investors with annual bumps to that dividend for over three decades without fail.
Step 3: Supercharge the income with a REIT
The final addition to this TFSA income trio is Slate Grocery REIT (TSX:SGR.UN). As one of the better-known REITs in Canada, Slate brings a unique mix of a defensive moat and high income to the portfolio.
Slate owns a portfolio of over 110 grocery-anchored properties across the U.S. Grocery stores tend to generate regular customer traffic regardless of how the economy is moving.
This adds some defensive appeal, while also giving investors access to a Canadian REIT with a portfolio of U.S. assets. That’s a relatively rare opportunity.
In terms of income, Slate offers a distribution yield of 7.2% as of the time of writing. This gives the REIT the highest yield within this TFSA income portfolio.
How much is needed to generate a TFSA income of $800 a month?
No stock is without risk, and that includes defensive investments such as the trio mentioned above. Here’s how I would invest across those three options to hit that $800 per month target.
| Company | Recent Price | Total Invested | Number of Shares | Dividend | Total Payout | Frequency |
| iShares S&P/TSX Composite High Dividend Index ETF | $39.73 | $70,000 | 1,761 | $1.39 | $2,447.79 | Monthly |
| Enbridge | $71.71 | $60,000 | 836 | $3.88 | $3,243.68 | Quarterly |
| Slate Grocery REIT | $16.49 | $60,000 | 3,638 | $1.21 | $4,401.98 | Monthly |
| Total: | $10,093.45 | Monthly: | $841.12 |
With $190,000 invested across those three holdings, the portfolio will generate approximately $10,093 annually, or $841 per month.
Also, investors don’t need the full $190,000 in contribution room at once to reach that balance. Reinvested dividends and additional contributions can push the value of a TFSA up over time.
