New Investors: The Rationale to Focus on Income

Begin your investment journey with stable dividend stocks, such as Northview Apartment REIT (TSX:NVU.UN), to increase the stability of your investment returns.

Dividends improve the stability of stock investment returns, which can consist of dividends and price appreciation. The share price of a stock is volatile and can go up or down on news that is company specific, industry specific, or from market-wide corrections.

However, if you choose your investments right, you will get a stable income from your stock portfolio without having to worry about what the share price of each holding might do.

The rationale to invest for dividends

Dividend companies, which generate stable earnings or cash flows on a per-share basis and have sustainable payout ratios, offer stable dividends. So, you can quickly eliminate most miners, oil and gas producers, other commodity-related stocks, and high-growth stocks.

I’m not saying that you should never invest in these stocks — they might make up a small part of your portfolio or have primarily capital gains purposes given the opportunity — however, you should consider these after you’ve built a strong foundation for your portfolio in stable dividend stocks. This way you have better peace of mind.

apartment

Northview Apartment REIT (TSX:NVU.UN) is a reasonable investment for stable income, but it might surprise you with some upside as well.

The real estate investment trust (REIT) generates 90% of its net operating income (NOI) from residential properties and 10% from commercial properties.

Northview’s NOI geographical diversification is primarily from northern Canada (31%), Ontario (27%), and western Canada (24%).

Notably, its northern Canada portfolio has the highest average monthly rent (of more than $2,000) compared to other regions. It also has a high occupancy of ~94% in northern Canada.

It’s not surprising that the REIT has the lowest occupancy (of ~84%) in western Canada. However, it’s good to see that management has pretty much maintained the average monthly rent of nearly $1,000 in that region.

Northview stock has outperformed its peers and the Canadian REIT sector since 2016 primarily because its share price was overly depressed. In early 2016, it traded at a multiple of ~7.5. After the price appreciation and delivering a total return of ~40%, of which, 39% of it came from its dividends, the stock now trades at a multiple of 10.4.

Investor takeaway

Northview is a reasonable investment for income. Its dividend is sustainable as its funds from operations payout ratio is less than 80%. At $21.90 per unit, the stock offers a high yield of 7.4%.

Using a diversified group of stable dividend stocks as the foundation of your portfolio, you can get stable income which can help you branch out into other types of stock investing. Other than REITs, places you can look for stable dividends are banks, utilities, and telecoms.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned.

More on Dividend Stocks

Dividend Stocks

Top Canadian Stocks to Buy Right Now With $1,000

Investing in stocks is not about timing but consistency. If you have $1,000 to invest, these stocks offer an attractive…

Read more »

cloud computing
Dividend Stocks

Is Manulife Stock a Buy for its 3.5% Dividend Yield?

Manulife stock has been a long-time dividend winner, but the average has come down over the last few years. So…

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

This 7.5% Dividend Stock Pays Cash Every Single Month

Monthly dividend income can be a saviour, but especially when it provides passive income like this!

Read more »

jar with coins and plant
Dividend Stocks

2 High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These TSX stocks still offer attractive dividend yields.

Read more »

concept of real estate evaluation
Dividend Stocks

Invest $23,253 in This Stock for $110 in Monthly Passive Income

Dividend investors don’t need substantial capital to earn monthly passive income streams from an established dividend grower.

Read more »

Dividend Stocks

3 Mid-Cap Canadian Stocks That Offer Reliable Dividends

While blue-chip, large-cap stocks are the preferred choice for most conservative dividend investors, there are some solid picks in the…

Read more »

The letters AI glowing on a circuit board processor.
Dividend Stocks

Is OpenText Stock a Buy for Its 3.6% Dividend Yield?

OpenText stock has dropped 20% in the last year, yet now the company looks incredibly valuable, especially with a 3.6%…

Read more »

calculate and analyze stock
Dividend Stocks

How to Use Your TFSA to Earn $6,905.79 Per Year in Tax-Free Income

Put together a TFSA and this TSX stock, and you could create massive passive income from returns and dividends.

Read more »