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Passive Income: How to Make $137 per Month Tax Free

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Image source: Getty Images

Written by Amy Legate-Wolfe at The Motley Fool Canada

If you’re looking to create passive income each month tax free right now, I’m not going to lie. Now is certainly a great time to pick up cheap stocks, but it’s a toss up in many cases as to which dividend stocks are safe, and which are set to drop further.

So today, let’s get into a safe choice for your passive income portfolio. Then, we’ll look at how to create that income both right away, and in the years to come through reinvestment.

Making it tax free

First off, make sure you’re set up with a Tax-Free Savings Account (TFSA). This will ensure that any income you’re making isn’t subjected to taxes. But be careful! If you’ve already taken out cash this year, then you may not be able to invest a lot into your TFSA right now.

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The best option is to call up the Canada Revenue Agency (CRA) or your financial institution where your TFSA is. An advisor can tell you exactly how much room there is in your TFSA, and provide you with numbers on how much you can add in and how much you can take out without penalties.

Furthermore, don’t simply visit the My Account on CRA and assume that’s the number! Unfortunately, these numbers are in many cases not up to date, as your financial institution has to provide them to the CRA. So again, make the call.

Choosing a strong stock

If you are seeking a strong stock with a solid dividend, you want to find a company that’s in a stable industry. This would include those like utilities, infrastructure, banking, and energy as some examples. For me, I would go with an option such as Brookfield Renewable Partners LP (TSX:BEP.UN).

Brookfield stock is a strong energy stock in the renewable energy sector. It has assets located around the world, and in every area of renewable energy. From hydro utilities to uranium reactors, Brookfield stock has it all.

Yet shares have dropped since President Biden came into office, after peaking in 2021. Shares are now down 12% in the last year, but up 17% year to date as of writing. You can also grab a dividend yield at 4.4% right now as well.

Creating passive income

Now granted, Brookfield stock isn’t a monthly payer. However, we can still figure out how much we can make per month considering the stock itself. So let’s look at this next.

Let’s say you want to add $75 to your account through dividend passive income each and every month. Here’s what that would look like from just dividends.

COMPANY

RECENT PRICE

NUMBER OF SHARES

DIVIDEND

TOTAL PAYOUT

FREQUENCY

TOTAL INVESTMENT

BEP.UN

$41.69

489

$1.84

$900

quarterly

$20,386.41

But what if we threw some returns in there? Brookfield stock is down 12% in the last year, so what if it were to pop back up with just a $10,000 investment?

COMPANY

RECENT PRICE

NUMBER OF SHARES

DIVIDEND

TOTAL PAYOUT

FREQUENCY

TOTAL INVESTMENT

BEP.UN

$41.69

240

$1.84

$441.60

quarterly

$10,000

BEP.UN – 12% up

$46.69

240

$1.84

$441.60

quarterly

$11,205.60

With returns included, you would have a portfolio worth $11,205.60 when it rises 12%. Add in dividend income, and that’s $11,647.20, a total return of $1,647.20. Divide those returns each month and you could receive $137.27 each and every month!

The post Passive Income: How to Make $137 per Month Tax Free appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Brookfield Renewable Partners?

Before you consider Brookfield Renewable Partners, you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in May 2023... and Brookfield Renewable Partners wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 23 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 5/24/23

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Fool contributor Amy Legate-Wolfe has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.

2023