The Tax-Free Savings Account (TFSA) is one of the best wealth-building tools available to Canadians. Building the right TFSA strategy around the advantages of that account can help create a growing monthly passive income stream.
In fact, with just $25,000 to start, prospective investors can build a small portfolio that can begin to produce approximately $130 each month.
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Building the right TFSA strategy
Investors could, in theory, dump the entire $25,000 into one of the highest-yielding investments on the market. That could provide more income, but it also comes at the cost of taking on more risk.
Instead, I would split that investment between two of Canada’s better-known real estate investment trusts (REITs), with a slight tilt toward the higher-yielding option.
They can provide a monthly income stream and do so while catering to different segments of the market, which provides some added diversification.
Start by investing $16,000 in SmartCentres
The first investment in this TSFA strategy is SmartCentres (TSX: SRU.UN). SmartCentres owns a portfolio of retail properties located across Canada. In total, the REIT has 201 properties with 35.5 million square feet of income-producing space.
The bulk of SmartCentres’s portfolio is focused on essential retail, and many of the REIT’s properties have Walmart as an anchor tenant. A large, well-known anchor tenant often boosts surrounding retail sites.
This also gives the portfolio some defensive appeal.
In terms of results, SmartCentres finished the most recent quarter with an occupancy rate of 98.1%. The REIT also reported that extended leases saw a 12% bump in rents.
In terms of a distribution, SmartCentres pays out $0.15417 per unit each month. That puts the yield at an impressive 6.77%.
As part of our TFSA strategy, a $16,000 allocation to SmartCentres in this $25,000 portfolio would generate just under $90 each month.
Put the remaining $9,000 into Dream Industrial
Another REIT that can provide a monthly income stream for our TFSA strategy is Dream Industrial (TSX: DIR.UN). Instead of retail properties, Dream has a focus on warehouses, urban logistics, and distribution centres.
Dream’s portfolio also extends beyond Canada, with the company having sites in both Europe and the U.S.
As of the most recent quarterly update, Dream reported an interest in 565 buildings across 348 industrial assets. In total, that accounts for 75.7 million square feet of area.
Turning to income, Dream pays out $0.05979 per unit each month, which works out to a yield of 5.38%. That’s also inclusive of a recent 2.5% increase in that distribution.
Given the remaining $9,000 in our TFSA portfolio, the investment in Dream would provide just over $40 each month.
Use that TFSA strategy to collect $130 in monthly passive income
Together, the investment in both Dream and SmartCentres provides investors with just over $1,500 each year. That’s a blended yield of 6.3% across both investments.
Prospective investors not ready to draw on that income yet should note that those distributions can be reinvested. This allows the income stream to grow until needed, with the investment income remaining tax-free inside a TFSA.
Here’s how that investment works out for investors.
| Company | Recent Price | Total Invested | No. of Units | Annual Distribution | Total Payout | Frequency |
| SmartCentres REIT | $27.41 | $16,000 | 583 | $1.85 | $1,078.55 | Monthly |
| Dream Industrial REIT | $13.29 | $9,000 | 677 | $0.7175 | $485.70 | Monthly |
