Passive Income: 7 Reasons to Own This Monthly Dividend Stock

This Canadian REIT is a great example of what a perfect passive-income investment should look like. Right now, it’s a good buy, too!

| More on:

Passive-income investments should give you peace of mind to own them. They should require little attention from you (if at all) to manage them. In fact, the best passive-income investments should only require you to buy them at good valuations and do nothing more but hold them for passive income. Here’s one monthly dividend stock I own for passive income.

A big dividend stock

The number one thing that attracts passive-income investors to Canadian Net REIT (TSXV:NET.UN) is its high dividend yield. Its yield is close to 4.3% at writing, which is substantially higher than the Canadian stock market’s yield of approximately 2.5%. So, for each dollar invested, investors can get about 70% greater income! Its funds from operations (FFO) payout ratio of about 52% is sustainable.

Stable business and cash flow

Canadian Net REIT’s top tenants are grocery and convenience stores, including Loblaw, Walmart, Sobeys, metro, Parkland, and Couche-Tard. It can rely on these defensive tenants for rental income.

It owns a portfolio of quality commercial real estate leased on a triple-net or management-free basis. Triple-net leases that entail variable costs like insurance, taxes, and maintenance are taken up by tenants. Management-free leases, as the name implies, mean that tenants are responsible for managing the property or hiring another party to do it. These types of leases essentially lower the cost of operation for the REIT. Combined with the REIT’s average lease term to maturity of about seven years, it produces relatively stable cash flows.

Above-average growth

Canadian NET REIT’s cash flows are not only stable but also growing. Since 2012, it has increased its FFO per unit at a compound annual growth rate (CAGR) of 14.1%. This translated to cash distribution growth at a CAGR of 10.5%. Both are above-average growth rates! In essence, it has increased its dividend sustainably by raising it slower than its cash flow growth.

This Canadian REIT is perfect for the TFSA

REIT cash distributions are taxed differently than dividends. A large portion of Canadian Net REIT’s cash distribution in the last 10 years has been returns of capital that essentially reduce the cost basis of investors’ stock investments. To sidestep the hassle of keeping track of your average cost basis in a non-registered account, buy and hold units in your TFSA for passive monthly income tax free.

Discounted dividend stock

At $7.93 per unit, the defensive REIT is discounted by 15% according to the 12-month analyst consensus price target of $9.33 across six analysts shown on Yahoo Finance. It trades at about 13.8 times FFO, which is a decent valuation to pay for its expected double-digit growth rate.

Diversification

The stable REIT generates rental income across 95 properties — up from 74 properties at the end of 2020. The REIT continues to acquire suitable properties. By buying the REIT, investors gain immediate additional diversification for their real estate investment portfolios, which could include their homes, rental properties, and other REITs.

Low trading volume and low volatility

The stock has dipped only 4% from its recent high. On most market days, the stock seems to hardly move. In the long run, over the last 10 years or so, it has delivered annualized returns of approximately 13.6%, which is above average versus the average market returns of 7-10%.

Its low volatility and low trading volume make it the perfect addition to passive-income investment portfolios. It may be helpful to buy on down days or set a limit order for the longest expiry date to increase your chance of filling your order at the lowest prices.

Essentially, all you have to do is buy the stock at good valuations when you have some extra money and watch your monthly passive income grow. Don’t just depend on one stock, though. Rather, build a basket of dividend stocks you can rely on for passive income!

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.

The Motley Fool owns and recommends Alimentation Couche-Tard Inc. The Motley Fool recommends Canadian Net Real Estate Investment Trust. Fool contributor Kay Ng owns shares of Canadian Net Real Estate Investment Trust and Parkland.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »