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How to Make $350 a Month in Tax-Free Passive Income

Joey Frenette
Various Canadian dollars in gray pants pocket

You may not realize it yet, but if you’re a TFSA investor who’s been making your full contributions every year, you’ve got the power to give yourself a raise.

Most investors want to build their TFSA wealth through capital gains. But at any given instance, you can easily shift gears to turn that TFSA fund into a tax-free income stream to finance a sabbatical, a semi-retirement, or a full retirement.

Next year’s TFSA contribution room will jump to $69,500. If the funds are invested to achieve an average yield of 6%, you can earn an additional $4,170 in tax-free passive income, which works out to around $350 a month back in your pocket.

Who couldn’t use an extra $350 to help with rent or to pay-off those ridiculously high cellphone bills?

Ironically, REITs and telecoms are among the best investments to construct such a tax-free passive income stream.

Consider NorthWest Health Properties REIT (TSX:NWH.UN) and Telus (TSX:T)(NYSE:TU), two bountiful income stocks with yields of 6.8% and 4.9%, respectively, at the time of writing.

NorthWest’s AFFOs to continue heading north

NorthWest is a REIT within the attractive health care real estate sub-industry, which is riding on strong secular tailwinds. With a rising population and ageing Baby Boomers, the demand for health properties is going to go up, and NorthWest is going to do its part to meet the imminently rising demand.

What does that mean for NorthWest investors?

Not only will the already generous distribution be well-supported, but higher demand for hospitals, doctor’s offices, and clinics mean NorthWest will be able to command higher rents or lengthier lease terms over time, both of which bode well for long-term shareholders who are in it for the income.

While NorthWest continues building upon its property portfolio, adjusted funds from operations (AFFOs) are more likely to be on a steady uptrend over time. And that means distribution raises could be in the cards at some point down the road.

Don’t expect generous annual dividend hikes like with dividend stocks though, as REITs are subject to high distribution requirements, which act as a dampener on growth.

Telus: A substantial dividend for a fair price

The future of the Canadian telecom scene may be unfriendly to Telus, with competitive pressures mounting, but Telus’s dividend is still among the most attractive on the entire TSX index for risk-averse income seekers.

Moreover, Telus may have the edge relative to other incumbents thanks to its reputation for its high-quality wireless network and superb customer service, which will help keep retention rates high as federal regulators and new wireless competitors look to disrupt the Big Three triopoly.

While Telus won’t be able to sustain outsized capital gains as it has in the past while it looks to defend its subscriber base, it will be able to grow its dividend by a meaningful amount over time.

So, a 4.9% upfront yield and the potential for high single-digit or low double-digit dividend growth is still present. And at just 15 times next year’s expected earnings, Telus is a top candidate to scoop up for your income fund amid the recent Canadian telecom tumble.

Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS.

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