There are two main variables in the dividend passive income equation: capital and return, and both are directly proportional to passive income. Let’s say you have a passive income goal that’s $ 175 per month. You can invest about $ 52,500 in a conservative dividend stock that yields 4%. You can get the same monthly sum investing just $ 21,000 in stocks that offer a 10% return.
It might be wise to aim for the mean, for example a return of 7%. It would enable you to combine the security of capital and high returns in a better proportion. You would have to invest about $ 30,000 to meet the target amount.
A dividend aristocrat
Enbridge (TSX: ENB) (NYSE: ENB) is currently one of the most prolific aristocrats of the on TSX. It offers a return of 7.1%. So if you invest $ 30,000 in these 25-year-old Dividend Aristocrats, you can build passive income a little over $ 175 per month. Enbridge’s main selling point (aside from a delicious return) is the security of the dividends on offer.
Enbridge has maintained its dividends during some of the worst income periods in the sector and it is very unlikely that it will cut its dividends now that the sector is finally recovering.
While it is not a certainty, if you buy now you may be able to capitalize on the capital appreciation potential that Enbridge has brought to life on the sector’s rebound. With a price / earnings ratio of 14.9 and a price / book value of 1.7 times, the share is currently very attractively valued.
A financial company
Timbercreek Finance (TSX: TF) is a niche market finance company that is commercial real estate investors. There are several CRE projects that don’t go well with traditional mortgage lenders like banks. This allows financial firms like Timbercreek to fill the void and capitalize on a relatively untapped segment of the market. Most of the loans currently on the company’s books relate to apartment buildings (over 52%).
Other real estate segments include retail properties, vacant lots, offices, and even senior real estate. The portfolio is well diversified geographically in order to maximize the security of investor capital. Timebrecreek stock was pretty stable before the market crash and is pretty close to reaching its pre-crash valuation, so you shouldn’t be accepting large capital appreciation. However, the 7.3% yield is a big reason to consider this stock.
The story goes on
At 7.3%, you can save a thousand dollars on your $ 30,000 capital and still earn $ 175 a month in dividend income.
A profitable REIT
REITs are great for returns but not that good at maintaining their dividends. In 2020, several popular high-yielding REITs cut their dividends, however True North Commercial REIT (TSX: TNT.UN) is not one of them. The REIT hasn’t cut its dividends in the past six years. And even now that the stock price is only 8.3% away from its pre-pandemic return, the stock offers a staggering 7.9% return.
This means that with less than $ 27,000 in this REIT, you can start dividend income of $ 175 per month. The payout ratio is 162.8%, but it is better compared to the 2020 payout ratio. It has a strong balance sheet and impressive sales growth. Backed by strong financial stocks, this dividend stock offers compelling returns and is definitely worth considering.
Stupid takeaway food
You can either invest the entire $ 30,000 that you set aside for passive dividend income in one of the three stocks, or you can split the capital in three ways and invest $ 10,000 each in each of the three companies.
The latter method allows you to diversify your dividend income and potentially offers safer capital appreciation potential than individual stocks.
The post Buy These 3 Stocks for $ 175 in Monthly Passive Income first appeared on The Motley Fool Canada.
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The fool Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.
2021
