TFSA Passive Income: Earn Over $600/Month! (2024)

Build your passive income based on safety of income and your principal. And make sure to target some growth as well.

Want to earn tax-free passive income? Build a diversified portfolio of income stocks in your Tax-Free Savings Account (TFSA). To require limited portfolio management, so as to fulfill the goal of earning passive income, investors should target to buy quality shares that pay out safe cash distributions at good valuations. It’d be like having an elf working for you behind the scenes and earning you an extra stream of income!

Here are a couple of stocks you can add to your radar to consider earning monthly passive income. At the end of the article, as an example, I will calculate the average yield across the stocks (assuming an equal-weight portfolio) and determine how much needs to be invested to earn over $600 a month.

Canadian real estate investment trusts (REITs) are a good place to search for passive monthly income. Aim to buy them on meaningful market corrections to start with a high monthly cash distribution.

Dream Industrial REIT

Within Canadian REITs, industrial REITs tend to be a good place to start researching because the industry is expected to continue experiencing growth. For example, Dream Industrial REIT (TSX:DIR.UN) could potentially witness funds from operations (FFO) growth of about 6% per unit per year over the next couple of years.

The REIT owns, operates, and manages an $8-billion diversified portfolio of industrial real estate in Canada ($4.9 billion) and Europe ($2.4 billion), as well as an interest of roughly 25% in a private U.S. industrial fund.

It maintains a high occupancy of over 96% and could increase its rental income, as its in-place rent is much lower than the market rent.

At $13.87 per unit at writing, DIR.UN offers a safe cash distribution yield of over 5%, supported by an FFO payout ratio of about 69% this year. Furthermore, analysts project the stock could appreciate by about 15% over the next 12 months.

It’s not a bad price here, but if it dipped below $13 per unit, it would provide a better margin of safety for investors who would get a higher yield of close to 5.4%.

Exchange Income

Exchange Income Corp. (TSX:EIF) is another monthly income stock that should be on Canadian investors’ radar. It is an acquisition-oriented company focused on opportunities in the aerospace and aviation and manufacturing industries. It generates diversified streams of cash flows from its subsidiaries. In turn, EIF pays out a nice monthly dividend.

It started paying a dividend in 2004. Since then, it has either maintained or increased the dividend. So, its dividend track record is pretty solid.

At $47.90 per share at writing, it offers a dividend yield of 5.5%. Analysts think it trades at a discount of more than 20%, which implies upside potential of about 30% is possible over the next 12 months.

If you’re investing equal amounts in both stocks for an average yield of about 5.3% today, you’d need to invest about $68,571 in each stock to earn $600/month. Of course, two stocks aren’t enough for a sufficiently diversified portfolio.

Other than considering stocks from different sectors and ones that don’t necessarily pay out dividends monthly, you can also reduce your portfolio volatility and lower your risk by adding fixed-income investments like bonds via bond exchange traded funds (ETFs) and guaranteed investment certificates (GICs). Most dividend stocks pay out dividends quarterly. So, it’d be wise to think through your risk and return profile and approximate your annual passive income instead of your monthly passive income.