Here’s How I’d Turn a TFSA Into $500 a Month, Tax-Free

Here’s how you can use the TFSA to generate $500 a month in tax-free dividend income.

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Key Points
  • Use your TFSA as a tax‑free income engine by holding monthly dividend stocks instead of cash.
  • Boston Pizza Royalties (TSX:BPF.UN) pays $0.124/unit monthly (unit ≈ $21.63), so about 4,033 units (~$87,234) would generate roughly $500/month tax‑free.
  • Monthly payouts simplify budgeting and compound tax‑free, but diversify your TFSA—don’t concentrate all capital in a single fund despite BPF.UN’s long payout history.

The Tax-Free Savings Account (TFSA) can be more than a mere savings account if you have the right approach to using it. The TFSA is essentially a means to encourage Canadians to improve their savings practices by providing tax-free growth on assets held in the account and tax-free withdrawals without any penalties for early withdrawals.

However, looking at the TFSA through the lens of a stock market investor can fundamentally change the TFSA into one of the best investment vehicles available to Canadians. When you invest in dividend stocks and build a sizeable portfolio, you can get significant returns.

In a normal account, the returns from capital appreciation and dividends are subject to taxation by the Canada Revenue Agency (CRA). However, the same portfolio held in a TFSA can deliver wealth growth without taxes eating into your returns.

Thanks to the abundance of monthly dividend stocks in Canada, you can turn your TFSA into a tax-free passive income machine that pays each month. Building up a portfolio of the right monthly dividend stocks can help you make a lot through regular monthly distributions. You can even make $500 per month or more in money the CRA will not tax.

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.

Source: Getty Images

Top monthly dividend stock

Most TSX dividend stocks distribute dividends quarterly, but the TSX boasts several high-quality dividend stocks that pay each month. Among them, Boston Pizza Royalties Income Fund (TSX: BPF.UN) is one of the top picks. Being the name behind the largest casual dining brand in Canada, no Canadian is a stranger to it.

As of this writing, the fund trades for $21.63 per share, and it pays a monthly distribution of $0.12 per unit. The more units you own in the stock, the more you can earn through dividend distributions each month.

Monthly dividend stocks can be excellent investments for retirees or anyone who wants to eventually replace their paycheque with passive income. Instead of waiting for three months for quarterly distributions to land in your account, you can line your balance with additional cash each month, making budgeting much easier.

BPF.UN fits the bill perfectly for investors seeking regular monthly distributions. Boston Pizza opened its first location in Canada in Edmonton, back in 1964. Since then, it has served Canadians faithfully and remains fully Canadian-owned. The fund collects royalties from system-wide sales from its locations nationwide.

Since its initial public offering (IPO) in 2002, Boston Pizza has paid out $498.7 million to its shareholders, translating to $29.59 per share, which is higher than its current share price.

Foolish takeaway

And now, for the reason you likely clicked to read the post: How to use the stock to generate $500 per month. I would never recommend putting all your eggs in one basket. BPF.UN is one example from several that can amount to a well-diversified monthly-income-generating TFSA portfolio. For the sake of illustrating the power of monthly dividend stocks, I will show how BPF.UN can theoretically help you generate over $500 per month in tax-free dividends below.

The fund pays $0.12 per unit each month. To get $500 per month, you need about 4,033 units. At a unit price of $21.63, that works out to an investment of roughly $87,234.

TickerRecent PriceNumber of SharesDividend Per Share (Per Month)Total Payout (Per Month)Frequency
BPF.UN$21.634,033$0.12$500.09Monthly

Fool contributor Adam Othman 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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