Earning $500 a month sounds wonderful, until an investment portfolio has to produce it. Now the target is $6,000 every year.
Inside a Tax-Free Savings Account (TFSA), eligible investment income and withdrawals can remain tax-free. That makes the account incredibly useful for building that future paycheque. So, how does one get started?
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Start with the target
At a 4% yield, $6,000 of annual income requires $150,000. At 5%, it takes $120,000. Then at 6%, the target falls to $100,000. Higher yields look increasingly attractive because they reduce the amount investors need to save.
That said, they can also be increasingly dangerous. A double-digit yield is far less helpful if the company cuts the dividend and the share price falls with it. I’d therefore look for a relatively high yield with actual coverage behind the payment.
FRU
Freehold Royalties (TSX: FRU) currently pays $0.09 per share every month, or $1.08 annually. Freehold doesn’t operate oil wells itself. It owns royalty interests across energy-producing lands in Canada and the United States. Other companies pay to drill and operate wells, while Freehold receives a percentage of the production revenue.
That removes much of the drilling and operating cost that a conventional producer would carry. The trade-off is commodity exposure. When oil and natural-gas prices rise, Freehold’s royalty revenue can climb quickly. When they fall, the opposite happens.
Payout improvement
Second-quarter funds from operations (FFO) reached $77.8 million, up 32% from the first quarter. Freehold paid $44.3 million in dividends during the quarter. That put the payout ratio at 57%, down from 75% in the previous quarter.
Net debt also fell to $251 million, equivalent to about one times trailing FFO. Those figures give the dividend considerably more breathing room than a yield screen alone suggests. At writing, the $1.08 annual payment produces a yield around 6.4%.
What $500 monthly takes
Because Freehold pays monthly, an investor would need 5,556 shares to generate slightly more than $6,000 annually. That’s about $500.04 per month.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| FRU | $16.77 | 5,556 | $1.08 | $6,000.48 | Monthly | $93,174.12 |
A contribution that large requires enough personal TFSA room. The 2026 annual dollar limit is only $7,000, although unused room from earlier years carries forward. Investors should confirm their own room before putting $93,000 inside a TFSA.
Considerations
I wouldn’t put an entire $93,000 income portfolio into Freehold. Oil prices can fall, drilling activity can slow, and production from existing wells declines over time.
The dividend isn’t guaranteed either. I’d use FRU as one part of a broader basket of Canadian dividend stocks so banks, utilities, pipelines, insurers, and other businesses help produce that $500.
Bottom line
At today’s price and dividend, Freehold shows that roughly $93,000 could theoretically produce $500 of monthly TFSA income. That’s less than the $150,000 needed at a 4% yield.
The savings come with more commodity risk. I’d use the calculation as a destination, not an instruction to buy 5,556 shares tomorrow. After all, the strongest TFSA paycheque has several companies signing it.
