I’d Put My Entire TFSA Into This 6.5% Dividend All-Star

A TFSA maxed to $109,000 could generate nearly $592 a month tax-free from one high-yield REIT, but only if the payout stays covered.

Key Points
  • SmartCentres’ 6.5% monthly distribution looks supported, with 98% occupancy and a roughly 90% AFFO payout ratio.
  • A fully funded TFSA could buy about 3,839 units and produce roughly $7,100 yearly, or about $592 monthly.
  • Debt and development costs are the main risks, so don’t let one REIT dominate your whole TFSA.

A Tax-Free Savings Account (TFSA) capable of producing more than $7,100 a year sounds less like a savings account and more like a small employee who never requests vacation. The income could arrive monthly, remain sheltered from tax, and purchase additional units without touching the household budget. Reaching that point takes contribution room, patience, and one unusually generous income investment.

Happy shoppers look at a cellphone.

Source: Getty Images

A tax-free head start

The 2026 TFSA contribution limit is $7,000. Someone eligible every year since 2009 who has never contributed could have as much as $109,000 of room, although everyone should confirm their own amount. Unused room carries forward, while withdrawals generally return as new room the following calendar year.

Interest, distributions, and capital gains earned inside a TFSA don’t produce an annual tax bill. Withdrawals also won’t raise taxable income or reduce federal income-tested benefits such as Old Age Security (OAS). That makes the account valuable for retirement income, provided one exciting yield doesn’t inspire investors to forget diversification entirely.

Yield needs backup

A 6.5% yield can compound much faster than a 3% payment, particularly when deposits arrive monthly and purchase more units. The larger number also deserves more suspicion. Investors should examine how much recurring cash the business produces, how much it distributes, and whether debt or operating problems could eventually invite the dreaded “dividend update.” Those words rarely arrive with confetti.

That brings us to real estate investment trusts (REIT), as REITs use adjusted funds from operations (AFFO) to estimate the recurring cash available after maintaining their properties. A payout ratio below 100% indicates some cash remains after distributions. Among Canadian REITs, one familiar landlord combines a large monthly payment with stores Canadians continue visiting in strong and weak economies.

The Walmart landlord

SmartCentres REIT (TSX: SRU.UN) owns 201 properties across Canada, including 114 Walmart-anchored shopping centres. Its tenants sell groceries, prescriptions, household goods, and other products shoppers can’t postpone forever. SmartCentres stock collects rent, then uses its enormous land portfolio to add apartments, self-storage facilities, offices, and new retail space.

The latest quarter made that strategy easier to trust. Occupancy reached 98.1%, while management found new tenants for four of six former Toys “R” Us locations at higher rents. Two Quebec self-storage projects also began opening, and a newly acquired Winnipeg property will receive a Walmart backed by a 20-year lease, turning some empty boxes into new rent cheques.

A 6.5% monthly payout

SmartCentres stock distributes $0.15 per unit monthly, or $1.85 annually. As of writing, that comes to a 6.5% yield. Its rolling AFFO payout ratio was 90.5%, which covers the current payment while leaving a modest cushion. I’d still prefer that cushion to grow before expecting a distribution increase.

Someone with $109,000 of available room could buy 3,839 whole units for $108,989.21. The position would produce approximately $7,102.15 annually, averaging nearly $591.85 each month.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
SRU.UN$28.393,839$1.85$7,102.15Monthly$108,989.21

SmartCentres stock uses substantial debt, while higher borrowing and construction costs can squeeze AFFO. Development projects can also take years before producing rent, and the distribution isn’t guaranteed. In short, I wouldn’t literally make one REIT my entire TFSA, since a property downturn shouldn’t be allowed to take the whole account with it.

Bottom line

If I had to build a TFSA around one high-yield holding, SmartCentres stock’s essential tenants, 98.1% occupancy, and 6.5% monthly distribution would put it near the top. I’d buy gradually, add other sectors around it, and let each tax-free payment turn another piece of Canadian shopping-centre rent into future income.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends SmartCentres Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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