How I’d Split $40,000 in My TFSA for Steady Monthly Income

Passive income can provide greater financial flexibility and stability amid ongoing geopolitical tensions, trade uncertainties, persistent inflation, and elevated interest rates. It can also help investors offset rising living costs and preserve their purchasing power over time.

One convenient way to build a passive income stream is by investing in quality monthly dividend-paying stocks. However, dividend payments aren’t guaranteed and depend on a company’s financial performance, cash flow, and management decisions. Investors should therefore prioritize established businesses with resilient cash flows and a proven track record of consistent distributions.

Against this backdrop, I believe the following two monthly dividend-paying stocks are worth considering. An investment of $40,000, split equally between these stocks, could generate approximately $214.64 in monthly income at the stated payout rates. Holding these investments in a Tax-Free Savings Account (TFSA) could also allow eligible dividends and capital gains to grow tax-free, subject to the account’s contribution limits and applicable rules.

Let’s examine these two stocks and their income-generating potential in detail.

Automotive Properties Real Estate Investment Trust

My first pick is Automotive Properties Real Estate Investment Trust (TSX: APR.UN), which owns and operates 95 income-producing commercial properties spanning approximately 3.5 million square feet of gross leasable area. 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 supports consistently high occupancy and reliable rent collection. Contractual rent escalators and consumer price index (CPI)-linked adjustments also help mitigate inflationary pressures while supporting organic rental income growth.

Reflecting its resilient business model, Automotive Properties REIT increased its monthly distribution by 2% to $0.07 per unit in August, offering a forward yield of approximately 7.1%. The REIT also stands to benefit from consolidation across the fragmented automotive dealership and service industries in Canada and the United States. As operators pursue acquisitions, their capital needs rise, prompting some to unlock real estate value through sale-and-leaseback transactions. These arrangements allow businesses to raise capital while continuing to operate from their existing locations under long-term leases, creating a recurring pipeline of acquisition opportunities for the REIT.

Supported by its resilient operating model, solid financial performance, and balance sheet, Automotive Properties REIT appears well positioned to expand its portfolio and grow recurring cash flows. These strengths could also help it sustain its attractive monthly distributions over the long term.

Peyto Exploration & Development

Peyto Exploration & Development (TSX: PEY) is a Canadian energy producer focused on acquiring, exploring, developing, and producing natural gas and oil in Western Canada. Its long-life reserves, low-cost operations, disciplined capital allocation, and efficient operating model have helped it navigate economic and commodity-price cycles while maintaining resilient financial performance. This track record has supported substantial shareholder distributions, with Peyto returning approximately $3.5 billion in dividends since 1998. Its current monthly dividend of $0.12 per share offers a forward yield of approximately 5.8%.

The company could also benefit from favourable commodity-price trends. Oil prices have remained elevated amid stalled progress in U.S.-Iran peace talks and persistent geopolitical uncertainty. While commodity prices remain volatile, sustained strength in energy markets could support Peyto’s revenue and cash flow generation. Meanwhile, the company plans to invest $450 million to $550 million this year to drill 70–80 net wells and advance gathering infrastructure and plant-debottlenecking projects. These investments should help enhance operational efficiency and expand production capacity.

Peyto’s substantial reserve base further underpins its long-term growth potential. With approximately 1.5 billion barrels of oil equivalent in proved and probable reserves, the company has a sizeable resource base to support future development. Combined with ongoing capital investments and operational improvements, these reserves provide a foundation for management’s target of growing production at an annualized rate of 5% to 10% in the coming years.

Overall, Peyto’s extensive reserves, cost-efficient operations, and disciplined development strategy position it to pursue sustainable production growth and support shareholder distributions. For income-seeking investors, the company offers an attractive combination of monthly dividend income and exposure to the long-term potential of Canada’s energy sector.