FN:CC - Passive Income: How to Make $200/Month Tax Free!

2023-11-21 09:30:00 ET

Have you ever wondered how much passive income you could earn tax-free in a Tax-Free Savings Account (TFSA)?

It all depends on how much money you’ve got in your TFSA and the yield on your investment. It’s possible to have $88,000 worth of unused TFSA contribution room in 2023. That’s the amount of contribution room you’ll have if you were 18 or older in 2009 and have never contributed to a TFSA before. If you have already contributed to a TFSA and have realized good returns on your investments, you may have a greater than $88,000 TFSA balance. That’s certainly possible, but for the purposes of this article, we will treat $88,000 as the amount of money you have to play with in your TFSA.

How to make $200 per month in a TFSA

Given that $88,000 is the maximum TFSA contribution room for 2023, we can treat that as the amount of money you have to invest. So, the question is, “How do you get $200 per month with $88,000 invested?”

An easy option is to simply invest all of the money in index funds. The TSX Index currently yields about 3%. If you invest $88,000 at a 3% yield, you get $2,640 per year in dividend income , which averages out to a little over $200 per month. You can easily achieve this with a TSX index fund like iShares S&P/TSX Capped Composite Index Fund. These funds invest in the entire TSX stock market and pay you the dividends earned on the stocks in the index. They’re pretty safe, low-cost investments that can get you the dividend income you desire.

Getting to $200/month with less money invested

Now, let’s say you don’t have $88,000 to invest but are, nevertheless, adamant about getting to $200 per month in tax-free passive income. To do this, you will need to invest in riskier, higher-yielding assets.

Take First National Financial ( TSX:FN ) for example. It’s a Canadian financial services stock with a 6.5% yield. If you buy 1,084 shares of First National Financial, you’ll get $200 in dividend income per month. In this case, the $200 is literally paid out monthly, as FN is a monthly dividend stock.

The math above demonstrates that you will get $200 per month with 1,084 FN shares if the company keeps paying its dividend.

Will it keep paying its dividend as it has been?

Most likely, yes. FN is performing very well as a business this year. In its most recent quarter, it delivered the following:

• $142 billion in mortgages under administration, up 10%
• $$563 million in revenue, up 26%
• $83.1 million in net income, up 108%
• $1.38 in earnings per share

FN’s earnings per share is more than double what the company pays in dividends per share. And the company’s earnings are growing. So, FN will likely be able to keep paying its $0.20 monthly dividend for the foreseeable future.

The post Passive Income: How to Make $200/Month Tax Free! appeared first on The Motley Fool Canada .

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

2023