A six-figure Tax-Free Savings Account (TFSA) may sound exciting, but if you’re not using it to generate reliable long-term income, you may not be getting the most out of it. One of the biggest advantages of a TFSA is that any eligible investment income, including dividends, can be earned tax-free. That means a well-built portfolio can provide a meaningful stream of passive income without increasing your tax bill.
For example, a $109,000 TFSA portfolio invested in a Canadian dividend stock with a healthy yield could generate impressive monthly income. Whether you use that extra cash to cover everyday expenses, reinvest it to accelerate your portfolio’s growth, or save it for future goals, the flexibility of tax-free income is one of the TFSA’s biggest advantages.
In this article, I’ll highlight a TFSA-friendly monthly income stock and explain why it could be worth considering today.
A monthly income stock to consider for a TFSA
If you’re looking to turn your TFSA into a reliable source of monthly income, Slate Grocery REIT (TSX:SGR.UN) could be worth a closer look. It owns and operates grocery-anchored real estate across major U.S. metro markets. Because grocery stores provide everyday essentials, the real estate investment trust (REIT) benefits from a portfolio built around properties that tend to attract consistent customer traffic.
At the time of writing, the stock traded at $17.61 per share, giving it a market cap of roughly $1 billion. The REIT was only 1% below its 52-week high and had gained 22% over the last year. At this price, it also offered an attractive 6.9% annualized dividend yield with monthly distributions.
Why the business continues to grow
In the first quarter, Slate Grocery REIT completed more than 725,000 square feet of leasing activity. Its renewal leases were signed at rents 18.9% above expiring levels, while new leases were completed at 49% above the comparable average in-place rent, highlighting continued demand for its properties.
Those leasing gains helped the trust’s rental revenue jump 11.8% year-over-year (YoY) to US$59.3 million. Similarly, its net operating income (NOI) rose 3% YoY to US$42.5 million, while net profit climbed 17.5% from a year ago to US$18.9 million.
Meanwhile, Slate’s portfolio occupancy remained stable at 94.4%. Even more importantly, the REIT’s average in-place rent was US$12.98 per square foot, well below the reported market average of US$24.59. That gap gives the business meaningful room to increase rents as existing leases expire, and new agreements are signed.
Why it could still be worth buying today
Interestingly, about 90.2% of Slate’s debt carries fixed interest rates, with a weighted average interest rate of 5%, giving it stability even if borrowing costs remain elevated.
For TFSA investors focused on building reliable passive income, Slate Grocery REIT offers an attractive combination of a high monthly yield, solid leasing momentum, and opportunities for future rental growth.
A $109,000 TFSA could generate over $103,000 in income in 10 years
Slate Grocery REIT’s 6.9% yield could make a noticeable difference inside a TFSA over the long run. A $109,000 investment today could generate about $7,521 in annual income, or roughly $627 every month.
These figures become even more impressive over the long term. If those monthly distributions are consistently reinvested, a $109,000 investment could generate more than $103,000 in cumulative dividends over 10 years, assuming a 6.9% annualized yield and annual reinvestment. That highlights how combining tax-free income with compounding can significantly increase the long-term value of a TFSA.
Note that this is a conservative estimate that assumes dividends are reinvested once each year at a constant 6.9% annual yield. Because Slate Grocery REIT pays monthly distributions, reinvesting those distributions more frequently could result in slightly higher long-term returns. That said, long-term investors may want to diversify their TFSA portfolio instead of investing such a large amount in a single stock.
