How to Use a TFSA to Generate $330 in Monthly Tax-Free Income

Monthly-paying dividend stocks can be an effective way to build a reliable stream of passive income while also providing the potential for long-term capital appreciation. However, dividend payments are not guaranteed and ultimately depend on a company’s financial strength, cash-generating ability, and capital-allocation decisions. Therefore, income-seeking investors should prioritize established businesses with resilient cash flows, a consistent history of dividend payments, and sustainable growth prospects.

Against this backdrop, I believe the following two quality monthly-paying dividend stocks could be compelling options for investors seeking reliable passive income. A $60,000 investment, split equally between these stocks, could generate more than $330 in monthly dividend income. Moreover, holding these investments in a Tax-Free Savings Account (TFSA) could allow eligible investors to earn dividend income and capital gains tax-free, subject to TFSA rules and contribution limits. Let’s look at these two stocks in detail.

Automotive Properties REIT

Automotive Properties Real Estate Investment Trust (TSX: APR.UN) is an attractive monthly-paying dividend stock for income-seeking investors. The REIT leases its properties to established tenants, including automotive dealerships, original equipment manufacturers (OEMs), and service groups, under long-term agreements. This tenant base, combined with near-full occupancy and strong rent collection rates, provides a resilient foundation for recurring rental income and cash flow generation. Moreover, contractual rent escalators and CPI-linked adjustments provide additional protection against rising costs while supporting organic rental income growth. Backed by this resilient business model, Automotive Properties REIT currently pays a monthly distribution of $0.07 per share, with a forward yield of 7.3%.

The REIT also has a compelling runway for long-term portfolio expansion. The highly fragmented automotive dealership and service markets in Canada and the United States are undergoing consolidation as operators face rising capital requirements and increasing pressure to improve efficiency. At the same time, smaller dealerships are increasingly monetizing their real estate through sale-and-leaseback transactions, unlocking capital while continuing to operate from their existing locations under long-term leases. This dynamic could create a steady pipeline of acquisition opportunities for Automotive Properties REIT. Given its resilient operating model, healthy financial performance, and solid balance sheet, the REIT appears well positioned to expand its portfolio, grow recurring cash flows, and sustain its attractive monthly distributions over the long term.

Peyto Exploration & Development

Another monthly-paying dividend stock I am bullish on is Peyto Exploration & Development (TSX: PEY), an energy company focused on acquiring, exploring, developing, and producing oil and natural gas in Western Canada. Its low-cost operations, long-life reserve base, disciplined capital allocation, and efficient operating model have helped it maintain resilient financial performance through various economic and commodity-price cycles. This financial strength has enabled Peyto to return approximately $3.5 billion to shareholders through dividends since its inception in 1998. The company currently pays a monthly dividend of $0.12 per share, representing a forward yield of approximately 6%.

While oil prices have moderated from their recent highs, they remain relatively elevated. Oil prices could also receive further support from ongoing geopolitical uncertainty, including stalled peace talks between the United States and Iran. Peyto is also investing to expand its production base, with plans to deploy $450–550 million this year to drill 70–80 net wells, as well as on gathering and plant-debottlenecking projects. These investments could strengthen its production profile and support future cash-flow growth.

Peyto also has approximately 1.5 billion barrels of oil equivalent in proved and probable reserves, providing a substantial inventory of future development opportunities. Furthermore, its ample processing capacity and strong transportation infrastructure could support annual production growth of 5–10% in the coming years. With a sizeable reserve base, disciplined growth strategy, and exposure to potentially favourable commodity prices, Peyto appears well positioned to sustain its monthly distributions, making it an attractive option for income-seeking investors.