Dividend investing is one of the most effective ways to build wealth. It is also a direct way to create routine cash flow you can use to pay recurring household bills.
Canadian retail investors can generate tax-free income through the Tax-Free Savings Account (TFSA), a special privilege. You can use your available TFSA contribution room to invest in a high-yield cash machine like Diversified Royalty Corporation (TSX: DIV). At $4.06 per share, you can purchase 4,230 shares ($17,173.80) to earn $100 a month tax-free.
The TFSA is the ultimate account for income seekers, including retirees. All interest, capital gains, and dividends earned inside the account are tax-free. If your stock appreciates, the gain is all yours, too. DIV is up 15.5% year-to-date, outpacing the TSX’s plus-12.2% return. Withdrawn funds are added back to next year’s contribution room.
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Core business model
Diversified Royalty acquires top-line royalties from well-known franchises. The $766.4 million multi-royalty corporation funds dividends from top-line sales of companies in the royalty pool. Its monthly payout schedule makes it an attractive option for income-focused TFSA investors.
The royalty stock has built a solid track record of delivering consistent, generous cash payouts. Diversified Royalty introduced its monthly distribution policy in 2014 and has maintained it since.
If you plan to capitalize on the TFSA’s tax-free growth by reinvesting those monthly dividends, your $17,173.80 position could nearly double to over $34,000 in 10 years. DIV lets you turn your capital into a passive monthly income stream or a long-term compound growth engine. A Dividend Reinvestment Plan (DRIP) is likewise active, offering a 3% DRIP discount.
Royalty partners
Currently, Diversified has seven royalty partners. Sutton Group, Mr. Mikes, Oxford Learning Centres, and BarBurrito are home-based. The American partners are Stratus Building Solutions and Cheba Hut, while Nurse Next Door is a cross-border partner (Canada and the U.S.).
Mr. Lube + Tires, Canada’s leading automotive service chain, used to be the lead royalty partner but is now a wholly owned subsidiary. With AIR MILES, Diversified Royalty reached an agreement to receive a fixed royalty from the loyalty program beginning on February 1, 2027, for the next 10 years. Bank of Montreal operates AIR MILES.
Solid top-line momentum
In the first half of 2026, revenue and royalty income increased 17% and 6.4% year-over-year to $39.2 million and $35.3 million, respectively. Because its core business model relies on acquiring top-line royalties, Diversified is largely dependent on the ability of its royalty partners to maintain and increase system sales. Mr. Lube + Tires is well-positioned to expand and open new flagship locations.
Increasing cash flow per share by making accretive royalty purchases remains the primary objective. Mr. Lube +Tires and purchased royalties should drive organic growth. Diversified Royalty also intends to continue paying predictable, stable monthly dividends and increase payouts over time as cash flow allows.
The foolish bottom line
The TFSA ensures that every single dollar contributed the right way in your account is completely tax-free. Moreover, investing in a high-yield cash machine like Diversified Royalty provides generous tax-free income every month. Retail investors should know where their money should go, regardless of the amount.
