Transform your TFSA into a cash-generating machine with just $ 10,000

Shares that offer a dividend-reinvestment plan (drip) automate composition. However, the disadvantage of a drop is that you have to terminate the plan to get a payout, so that it is combined. Here is a strategy that can continue the compound effect and can also give you a monthly payment.

The dividend investment strategy to transform your TFSA into a cash-generating machine

Step #1: Invest $ 10,000 in a share of a dividend growth

You could consider investing in Canadian natural resources (TSX: CNQ), which has grown its dividend with a compound annual growth rate (CAGR) of 23% in the past 25 years. The oil and gas company can continue to grow its dividend due to the cost advantage of low-maintenance oil reserves. It can produce oil in the middle of the US $ 40 per barrel after taking maintenance and dividends.

Step #2: Invest the dividend that is earned in shares with a high return

You could consider investing the dividend payments of CNQ to buy Smartcentres Reit (TSX: SRU.UN), with a yield of 7%. The largest strengths of the Real Estate Investment Trust (REIT) are the possession of the largest retail portfolio in Canada and the largest tenant, Walmartfrom which it earns 23% of its rental income. De Reit has a 21-year history of paying dividends. It survived the financial crisis of 2008 and the 2020 Pandemie without dividend reductions.

Smartcentres has expanded its portfolio to record features for mixed use through an intensification program, in which it builds offices, homes and warehouses in the vicinity of its stores. This increases the value of its stores and the Reit earns rent and capital profits from the sale of residential apartments.

There are a few assumptions about the two shares for this dividend strategy:

• We assumed that the unit prize from Smartcentres Reit would rise to $ 27 in 2026, $ 28 in 2027 and $ 29 in 2028. From 2029 we expect the unit price to stabilize at $ 29.
• We have kept the distribution of Smartcentres Reit per share unchanged, because there is no regular dividend growth.
• For Canadian natural resources, we have taken a conservative estimate of a dividend CAGR of 10% for the next 10 years.

How to convert a TFSA investment of $ 10,000 into $ 2,141 annual cash machine

An investment of $ 10,000 now in Canadian natural resources can buy you 227 shares for $ 44 per share. Since half a year has expired, you are eligible to receive dividends for the next two quarters. These 227 shares can give you $ 266.73 to dividends at $ 1,175 dividend per share for two quarters. If you invest this dividend to buy Smartcentres Reit, you can get 10 units for $ 26 per unit.

Since you buy these units at the end of the year, at the end of 2026 you can get $ 53.16 in dividend income on these 10 units. You can repeat the reinvestment process for 10 years. As CNQ increases its dividend, you have more money to buy more units from Smartcentres. By 2035 you could collect 335 units from Smartcentres Reit, for which you will receive dividends in 2036, which is at $ 619.34 (335 x $ 1.85).

Note that we have completed the unit number, because this is not a drop. You buy units from the Open Markt, where you have to buy a whole unit.

Investor benefits

In this strategy, the dividend of Smartcentres Reit will be a cash payment, while the CNQ dividend will be exacerbated. If you stop reinvestment in the Reit, you will receive both the monthly dividends of CNQ and the monthly dividends of Smartcentres, which resolve to $ 2,141 cash payment in 2036.