Transform Your TFSA Into a Cash-Creating Machine With $10,000

A Tax-Free Savings Account (TFSA) is one of the best tools Canadians have for building wealth, yet a lot of that room is left unused or parked in low-yield instruments.

If you have $10,000 sitting in your TFSA right now, you can put it to work by owning a portfolio of quality dividend stocks.

Dream Industrial REIT (TSX:DIR.UN) is a Canadian dividend stock worth a closer look. It owns and operates a portfolio of logistics and distribution buildings across Canada, Europe, and the United States, the kind of unglamorous but essential real estate that online retailers, manufacturers, and logistics companies depend on every single day.

With a distribution yield north of 4.5% and a business that posted one of its strongest quarters in years, it is the type of holding that can turn idle TFSA cash into a steady stream of tax-free income.

The bull case for this TFSA dividend stock

Dream Industrial REIT describes itself as an owner, manager, and operator of a global portfolio of well-located, high-quality urban logistics and distribution assets across Canada, Europe, and the U.S.

These properties include warehouses and small- to mid-sized industrial buildings, usually placed close to major population centers so tenants can move goods quickly and cheaply.

The trust leans heavily on its in-house property management team, which handles everything from leasing and construction to accounting and tenant services.

This vertical integration keeps costs down and allows the real estate investment trust (REIT) to respond quickly when a tenant needs more space or a building needs an upgrade, both of which lead to higher rents and higher customer retention rates.

Chief Executive Officer Alexander Sannikov told analysts the trust delivered 9% year-over-year comparative properties net operating income growth for the first quarter (Q1), driven by healthy leasing activity and strong tenant retention.

Further, Chief Operating Officer Gord Wadley said committed occupancy in Canada climbed to 96.8%, up from 94.4% a year earlier, while the total portfolio sat at 95.7% occupied.

The trust signed 1.8 million square feet of new leases and renewals during the quarter, at a weighted-average rental spread of 26.4% above expiring rents, a sign that tenants are paying meaningfully more to stay in or move into these buildings.

Funds from operations (FFO), the metric REIT investors watch closest since it strips out non-cash items like depreciation, came in at $0.26 per unit for the quarter.

Chief Financial Officer Lenis Quan noted that this was 2% higher than the same quarter last year, even after the trust sold a portion of its portfolio to a joint venture and used the proceeds to temporarily pay down debt.

A balance sheet built for the long haul

Dream Industrial REIT ended Q1 with a leverage ratio of 36.8% at the end of Q1, down 160 basis points year over year. The trust also closed a $200 million debenture offering in April at an all-in rate of 4%, while total available liquidity stood at over $600 million.

The trust has more than $500 million of acquisition opportunities in exclusive negotiations across Canada and Europe, plus another $250 million earmarked for its private joint ventures, all at attractive going-in capitalization rates.

For the full year, management reiterated guidance of $1.08 to $1.10 in funds from operations per unit, with occupancy expected to stay in the high 94% to low 96% range. Comparatively, its annualized dividend is much lower at $0.70 per share.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYDream Industrial REIT$14.30700$0.05833$40.83Monthly

A $10,000 investment in the REIT will help you earn close to $490 in annual dividends. In the last decade, Canadian dividend stocks have returned 64% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are closer to 200%.

I view Dream Industrial REIT as a buy for investors who want reliable monthly income without taking on excessive risk. It will not double overnight, but for a TFSA built around steady compounding cash flow, this is the kind of unglamorous, well-run business that quietly does the heavy lifting year after year.

The post Transform Your TFSA Into a Cash-Creating Machine With $10,000 appeared first on The Motley Fool Canada.

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More reading

• Today’s Perfect TFSA Stock: 5% Monthly Income
• My 2 Favourite Stocks for Monthly Passive Income
• The Ideal TFSA Stock: A 5% Yield With Constant Paycheques
• The Hidden Canadian Winners of the Data Centre Boom
• How to Use a TFSA to Generate $363.14 in Monthly Tax-Free Income

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Dream Industrial Real Estate Investment Trust. The Motley Fool has a disclosure policy.