Imagine Marcus, a 58-year-old Canadian resident who is close to retirement. He now wants to create a passive income stream to supplement pension plan payouts.
One strategy is to own quality dividend stocks in a Tax-Free Savings Account (TFSA) to benefit from recurring payouts and steady capital gains.
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How much do you need in a TFSA to earn $500 a month?
Owning monthly dividend stocks in the TFSA can help you earn $500 a month or $6,000 a year in dividends.
SmartCentres REIT (TSX: SRU.UN) and Automotive Properties REIT (TSX: APR.UN) offer an average dividend yield of 6.9%.
So, $ 6,000 divided by 0.07 means you need to invest roughly $87,000 to earn $500 in monthly payouts.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| SmartCenters REIT | $26.62 | 1,623 | $0.15 | $250 | Monthly |
| Automotive Properties REIT | $12.19 | 3,572 | $0.07 | $250 | Monthly |
Split that evenly, and Marcus would put roughly $43,500 into each REIT. At 6.9%, $87,000 pays about $6,000 a year, or close to $500 a month.
Is this TFSA contribution room realistic? A Canadian resident who has been eligible to open a TFSA account in 2009 and never contributed can have up to $109,000 of contribution room in 2026.
Why SmartCentres REIT can anchor a monthly income plan
SmartCentres owns shopping centres anchored by big-name retailers. It is now expanding around the growth plans of Walmart, Loblaws and Costco.
According to Chief Portfolio and Asset Management Officer Rudy Gobin, shoppers visit food, pharmacy, and dollar stores weekly. A toy store only sees them two or three times a year.
The REIT ended Q2 with an occupancy rate of 98.1%. Its same-property net operating income grew 2.6% or 4.4% excluding anchor tenants.
Management is also upgrading weak tenants. Four of the six former Toys R Us stores have new leases, with better tenants such as grocers and TJX banners. CEO Mitch Goldhar explained why he likes the development plan.
“There’s a year of construction for this type of thing, and we’re in debt for that year, but then we’re collecting rent for the next 20, 30 years,” he said.
The distribution stays at $1.85 per unit a year and funds from operations (FFO), a REIT’s cash earnings measure, stood at $0.58 per unit, unchanged from a year earlier.
The payout ratio against adjusted funds from operations (AFFO) is 90.5%, while adjusted debt-to-adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is 9.8 times.
Why Automotive Properties REIT adds a second monthly paycheque
Automotive Properties REIT owns dealership properties across Canada and the U.S., leased to dealer groups and automakers under a net lease structure.
Rent increases are either fixed or tied to the Consumer Price Index (CPI), according to CEO Milton Lamb, which offers the REIT built-in growth without relying on new deals.
In Q2, its property rental revenue rose 22.8% to $30.2 million, while AFFO per unit hit a record $0.263, up from $0.249. The Q2 payout ratio fell to 78.3%.
Trustees lifted the annual distribution about 2%, from $0.822 to $0.839 per unit, the second increase in a row.
The portfolio is 100% leased, and the REIT expects no material lease expiries until 2028. It also sold a 50% stake in a Vaughan property for $16 million, close to the roughly $17 million it paid for the whole property in 2016.
Around 74% of its debt is fixed rate, while the debt-to-gross book value stood at 47.5%.
What are the risks of earning TFSA income from REITs?
A 6.9% yield might seem attractive, but these payouts may be reduced amid economic downturns. So, it’s advisable to diversify your TFSA portfolio with other dividend stocks across multiple sectors to lower investment risk.
