Investing in a monthly dividend stock might seem too good to be true. Or maybe you're about to buy a company that only has dividends going for it without a strong future outlook. Yet, in the case of a dividend stock like Sienna Senior Living (TSX:SIA), this can be a savvy strategy for generating passive income within your Tax-Free Savings Account (TFSA). Today, let's explore why this approach is beneficial, considering SIA's recent earnings, past performance, and future outlook.

Sienna stock

Sienna Senior Living is a prominent Canadian company specializing in senior living options, including independent living, assisted living, and long-term care. The passive-income stock has demonstrated consistent financial growth, making it an attractive option for dividend-seeking investors. In the third quarter of 2024, Sienna reported a 12.5% increase in total adjusted revenue, reaching $224.8 million, up from $199.84 million in the same quarter the previous year.

This financial growth has enabled Sienna to maintain a reliable dividend payout. The passive-income stock pays a monthly dividend of $0.0780 per common share, amounting to $0.94 per share annually. This consistent payout provides investors with regular income, which can be particularly advantageous within a TFSA, where earnings grow tax-free.

Investing monthly in SIA allows you to purchase additional shares regularly, leveraging the power of dollar-cost averaging. This strategy can reduce the impact of market volatility on your investment. Over time, as you accumulate more shares, your dividend income increases, creating a compounding effect that enhances your passive-income stream.

Future outlook

Sienna's commitment to growth further bolsters its appeal. The passive-income stock has expanded its portfolio through strategic acquisitions, such as the recent purchase of continuing care homes in Alberta. These expansions are expected to contribute positively to Sienna's financial performance, potentially leading to future dividend increases.

Moreover, Sienna has shown resilience in addressing industry challenges, including staffing issues and occupancy rates. The passive-income stock reported an improvement in retirement segment occupancy, reaching 90.6% in October 2024. This uptick indicates effective management and a positive outlook for sustained revenue growth.

The stability of Sienna's dividend is underscored by its payout history. The passive-income stock has consistently distributed dividends, with a current yield of approximately 5.51%. This reliability makes it a dependable source of passive income for investors.

Bottom line

Investing within a TFSA amplifies these benefits, as all dividends and capital gains earned are tax-free. This tax advantage allows your investment to grow more efficiently, maximizing the compounding effect of reinvested dividends over time. So, how much would investors need to put away to create $300 per month in passive income or $3,600 annually?

Without even including returns, investors can gain $3,600 each year or $300 annually from a $64,765.30 investment at writing. Ultimately, allocating cash to a monthly dividend stock like Sienna Senior Living can be an effective strategy for building passive income within a TFSA. The passive-income stock's consistent financial performance, reliable dividend payouts, and growth initiatives provide a solid foundation for long-term investment success.