How to Easily Earn $425/Month TAX FREE!
Written by Robin Brown at The Motley Fool Canada
The Tax-Free Savings Account (TFSA) can become a passive income machine for Canadian investors. Paying no capital gains tax increases your returns by up to 10-20% (depending on your tax bracket).
Earn 10-20% more passive income by investing through your TFSA
Over the years, that extra 10-20% can be worth significantly more if given time to multiply. Because of this, the TFSA is ideal for building a passive income stream over the long term. Buy dividend stocks, earn income, buy more dividend stocks and earn even more income. It’s a great recipe for increasing wealth.
Fortunately, many high-quality dividend stocks have gone cheap recently, and dividend yields have risen. It’s a good time to start building a passive income portfolio.
Here’s a hypothetical portfolio that could generate up to $425 in tax-free monthly income. Stupid investors would be best served with a much more diversified portfolio (+10 stocks). However, this is to demonstrate the attractive monthly income that a TFSA can currently earn.
Pembina pipeline
Pembina pipeline (TSX:PPL)(NYSE:PBA) is a leading energy infrastructure company in western Canada. While the stock is up 10% this year, it’s down 13% over the past month.
This is a solid passive income stock as over 85% of earnings are contracted. When energy prices are high (as they are now), it can earn a higher margin on the energy products it processes and resells. It just had a record first half of 2022.
It just increased its dividend by 3.5%. The stock has a dividend yield of 6.15% today. If you invest one-third of your TFSA capacity ($27,166) in Pembina stock at today’s price of $42.15, you could buy around 644 shares. That would net you nearly $139 in tax-free monthly dividends.
NorthWest Healthcare Properties REIT
NorthWest Healthcare Properties REIT (TSX:NWH.UN) is a Toronto-based real estate investment trust that operates hospital and medical properties around the world. The stock is down 24% this year.
Healthcare real estate is an incredibly enduring passive income asset. NorthWest’s portfolio has very long-term leases (+14 years) and high-quality tenants (many state or state-sponsored tenants).
NorthWest is trading at a 7.2% payout yield today. If you put $27,166 of your TFSA in NorthWest stock, you could buy 2,650 units at $10.25. That would yield $163 in tax-free monthly distributions.
Algonquin force
Another very attractive passive income stock is Algonquin Power and Utilities (TSX:AQN)(NYSE:AQN). Based in Oakville, this company operates regulated utilities and renewable energy assets throughout North America.
The stock is down 16% this year. The Company intends to complete a major utility acquisition in Kentucky. However, the process is taking longer than expected and the stock was recently downgraded. Over the long term, the company has a very large capital plan that should drive solid earnings and dividend growth.
Algonquin is trading today with a dividend yield of 5.6%. If you invested another one-third of your TFSA portfolio in Algonquin stock, you could purchase 1,777 shares at $15.28. That would add up to $380 per quarter, or an average of $126 per month.
TFSA’s Residual Income Snack
The recent market slump presents great opportunities to buy high-yield dividend stocks for passive income. Put a diversified mix of dividend stocks in your TFSA, earn income, and reinvest it. This tax-free passive income stream could one day sustain your lifestyle well into retirement.
The post TFSA Passive Income: Here’s How To Easily Earn $425/month TAX FREE! appeared first on The Motley Fool Canada.
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Fool contributor Robin Brown has positions at Algonquin Power & Utilities Corp. The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS and PEMBINA PIPELINE CORPORATION. The Motley Fool has a disclosure policy.
2022