The TFSA is one of the few accounts where Canadians can earn investment income without giving a cut to the Canada Revenue Agency. Every dollar of dividends and capital gains stays in your pocket, which makes it an ideal home for reliable dividend stocks.
But not every high-yield stock belongs in a TFSA. Some payouts look attractive until you dig into the payout ratio, while others may cut their distributions the moment the economy wobbles.
SmartCentres REIT (TSX: SRU.UN) is a different story. The REIT has been paying monthly distributions since 2002, and it currently offers a yield of roughly 6.9%. For investors looking for steady, tax-free passive income, it is hard to ignore.
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SmartCentres
SmartCentres is one of Canada’s largest real estate investment trusts. Its portfolio includes 201 properties across the country, with approximately $12.1 billion in assets and 35.5 million square feet of leasable space.
Retail real estate might not sound like the safest place to invest when consumers are feeling the squeeze from a higher cost of living, but SmartCentres is not the typical owner of struggling malls packed with discretionary retailers.
More than 100 of its properties are anchored by Walmart. That matters because stores selling groceries and everyday essentials keep attracting steady customer traffic even when households become more careful with their spending. Walmart is also building dozens of new stores in Canada, which reinforces its commitment to the locations SmartCentres owns.
That kind of tenant base gives the REIT a degree of stability many retail landlords simply do not have.
The numbers back it up
SmartCentres ended the second quarter of 2026 with in-place and committed occupancy of 98.1%, up 0.5% from the previous quarter. It leased roughly 247,000 square feet of vacant space during the quarter, while rent growth on lease extensions excluding anchors came in at 12%.
For a retail-focused REIT operating in an uncertain economy, those are encouraging numbers.
The distribution itself is $0.15 per unit each month, which works out to $1.85 annually. At the current price of $26.90, that translates to a yield of roughly 6.9%.
Technically, REITs pay distributions rather than conventional dividends. But for investors looking to generate regular passive income inside a TFSA, the end result is the same: SmartCentres puts cash into your account every month, tax-free.
Why the payout looks sustainable
A 6.9% yield would mean very little if the properties behind it were struggling. The payout ratio to adjusted funds from operations sat at 90.5% for the trailing 12 months ended June 30. That is on the higher side, but it is consistent with how the REIT has operated for years.
More importantly, the cash flow supporting that payout keeps growing. Same-property net operating income rose 2.6% in the second quarter, or 4.4% excluding anchors. And the REIT has a development pipeline that adds new income-producing assets over time.
Two self-storage facilities partially opened in Quebec during the second quarter. Additional locations are under construction in British Columbia and Alberta. A 200,000-square-foot retail building pre-leased to Canadian Tire in Toronto is on schedule for possession in the third quarter.
The risks worth knowing
Of course, there are also several risks to keep in mind. REITs are generally more sensitive to interest rates because owning and developing properties requires debt. The REIT carries leverage of 9.8 times adjusted EBITDA, which is manageable, yet worth keeping an eye on.
A weaker economy can also hurt tenants, and prolonged weakness in consumer spending would create problems for any retail landlord. And the payout ratio leaves less room for error than some lower-yielding REITs.
Foolish takeaway
A 6.9% yield is high enough to catch anyone’s attention, but yield alone is never a good enough reason to own a stock. What makes SmartCentres worth considering for a TFSA is the business behind those distributions.
The properties remain almost entirely occupied with Walmart anchoring a large portion of the portfolio. The monthly payouts it offers make earning a passive income with it easier, and inside a TFSA, every dollar lands tax-free. For investors seeking reliable passive income, that combination is difficult to ignore.
