How to Earn Tax-Free Passive Income of Over $400/Month

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How to Earn Tax-Free Passive Income of Over $400/Month's Profile


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Amid rising energy and food prices, the consumer price index rose 8.1% in June. Despite the monetary tightening measures, analysts expect the inflationary environment to stay due to the ongoing geopolitical tension. The rising prices are putting pressure on households. So, naturally you are seeking investments that will help you to hedge inflation. One way to ease some of the pressure is to boost your passive income.

Acquiring monthly-paying dividend stocks is the most convenient and cheapest way to earn passive income. You can even earn tax-free returns by investing through a tax-free savings account (TFSA). The cumulative contribution ceiling for Canadian citizens, who turned 18 in 2009, is $81,500. So, if you invest the entire amount in stocks that pay dividends higher than a 6% yield, you can earn over $400 monthly. If you are ready, here are my three top picks.

SmartCentres REIT

REITs (real estate investment trusts) are an excellent buy for income-seeking investors, as they are bound to distribute around 90% of their cash flows. So, I have selected SmartCentres Real Estate Investment Trust (TSX:SRU.UN), which owns 174 properties across Canada with a total retail space of 34.7 million square feet, as my first pick. With substantial revenue coming from essential retailers, such as Walmart as an anchor tenant for many of its malls, the company’s cash flows are stable, thus allowing it to pay dividends every month since 2008.

Notably, SmartCentres REIT enjoys higher occupancy and collection rates than its peers. In the recently reported first quarter, its occupancy and collection rate stood at 97.2% and 98%, respectively. Additionally, the company’s project pipeline looks healthy, which includes Project 512, a $15.2 billion intensification program. So, I believe the company’s dividends are safe. Meanwhile, the retail real estate fund currently pays a monthly dividend of $0.15/share, with a yield for the next 12 months at 6.4%. The REIT’s price-to-earnings multiple stands at 4.6, lower than its historical average.

Pizza Pizza Royalty

With a dividend yield of 6.1%, Pizza Pizza Royalty (TSX:PZA) would be my second pick. The company operates Pizza Pizza and Pizza 73 brand restaurants through franchises. Given its highly franchised business model, the company’s cash flows are stable compared to its peers. Amid the reopening of dining spaces and non-traditional restaurants, the restaurant chain is witnessing higher footfalls, thus driving its same-store sales. The company’s same-store sales increased by 13.6% in the March-ending quarter, while its adjusted EPS grew by 12.3%.

Supported by its improving financials, Pizza Pizza Royalty has increased its dividends twice this year. Meanwhile, the company has restarted its restaurant development program and expects to increase its unit count by 5% this year. These new business activities and its investment in digital channels could boost and diversify its revenue in the coming quarters. Considering these factors, Pizza Pizza Royalty could deliver steady income streams for income-seeking investors.

NorthWest Healthcare Properties REIT

My final pick would be NorthWest Healthcare Properties REIT (TSX:NWH.UN), which acquires and manages healthcare properties. Supported by its defensive and diversified portfolio, long-term contracts, and government-backed tenants, the company has been generating stable and reliable income even during the pandemic. With 80% of its rent indexed to inflation, the REIT can pass on the rising expenses to its customers with its built-in inflation hedge.

In April, the company ventured into the United States by acquiring 27 properties for $765 million. With a focus on growing its global footprint, the healthcare REIT is working on expanding its presence in high-growth markets, such as Germany, Australia, the United Kingdom, and Canada. So, given its healthy growth prospects, I believe NorthWest Healthcare’s dividends are safe. With a monthly dividend of $0.07/share, its forward yield stands at a healthy 6.1%.



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