FSZ:CC - Got $6500? Earn $48/Month Tax-Free Passive Income

2023-03-20 18:00:00 ET

It’s beneficial to hold dividend stocks in your TFSA ( Tax-Free Savings Account ) for several reasons. First, companies that pay investors a dividend generally report consistent profits across market cycles, allowing them to outpace broader markets over time. Second, in addition to a regular dividend payout, long-term shareholders can also benefit from capital gains.

The TFSA is a tax-sheltered account, which means any returns from dividends, capital gains, and even interest are exempt from Canada Revenue Agency taxes. In 2023, the maximum contribution room in your TFSA is $6,500, which can be used to create a basket of income-generating dividend-paying TSX stocks.

With these factors in mind, here are three high-yield TSX stocks you can buy with $6,500 in March 2023.

Diversified Royalty stock

A multi-royalty company, Diversified Royalty ( TSX:DIV ) offers investors a dividend yield of 7.8%. It is engaged in the acquisition of royalty-based, multi-location businesses and franchisors in North America.

Diversified Royalty owns several royalty companies, such as Mr. Lube, AIR MILES, Stratus Building Solutions, and Nurse Next Door.

It reported revenue of $45.2 million in 2022, an increase of 21% year over year. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) stood at $50.2 million — up 19% compared to 2021.

With a payout ratio of 82%, investors can expect dividends to increase, especially if the company continues to improve profitability. Valued at 15 times forward earnings , DIV stock is trading at a discount of 30%, given consensus price target estimates.

Boston Pizza Royalties Income stock

The reopening of economies and relaxation of COVID-19 restrictions allowed Boston Pizza Royalties ( TSX:BPF.UN ) to increase 2022 sales by 30% to $855 million. The fund declared distributions of $25.8 million, or $1.199 per unit in 2022, up from $18.5 million, or $0.860 per unit, in 2021.

Boston Pizza’s dividend yield currently stands at 7.8%. Priced at 11.5 times forward earnings, Boston Pizza stock is trading at a discount of 30%, given consensus estimates.

Fiera Capital

An asset-management company, Fiera Capital ( TSX:FSZ ) generates revenue from management fees and performance fees. So, its sales are directly related to the assets held under management. In a bull run, Fiera Capital and its peers experience record inflows of cash. But during bear markets, its AUM, or assets under management, moves significantly lower.

An uncertain macro environment is forecast to lower Fiera’s adjusted earnings per share to $1.16 per share. But FSZ stock is currently down 41% below all-time highs, increasing its dividend yield to more than 11%.

The TSX stock is valued at just 6.7 times forward earnings and is among the cheapest stocks in Canada. A double-digit yield is quite attractive for investors, especially if equity markets stage a rebound in the second half of 2023.

Bay Street expects Fiera Capital stock to gain another 20% in the next 12 months. After accounting for its dividends, total returns are closer to 32%.

The Foolish takeaway

Each of the three TSX stocks discussed here pay investors a tasty dividend. If you distribute $6,500 equally in these three stocks, the average dividend yield is 8.83%, resulting in annual payouts of $574, or $48 per month.

The post Got $6,500? Earn $48/Month Tax-Free Passive Income appeared first on The Motley Fool Canada .

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Fiera Capital. The Motley Fool has a disclosure policy .

2023