Passive income seems to continue to be the main focus of investors these days. Canadians are hoping to create some extra cash flow, if not from returns, then at least from dividends. But I would certainly not ignore returns these days.
In fact, 2024 could be a huge year for many investors as the market continues to show signs of recovery. By the end of this year, you could look back at it as the best financial year of your life! That is, if you invest properly.
So, let’s look at how to start creating that passive income and how much it will take on the TSX today.
Look for value
First off, if you’re going to try to find both returns and value, you’re going to need to find a stock that’s undervalued. That’s far easier said than done, but there are certainly some clues that you can look to.
First off, how long has the stock been on the market? If it’s a relatively new stock from the last few years, I would take it off your list. That could mean there is more volatility in the future for the company rather than choosing one that has a long history of returns and dividend growth.
Therefore, consider searching for companies that offer blue-chip status. These are stocks that are household names in their sector, with decades of growth behind them. You’ll then be able to look back on historical performance to see how these stocks have faired coming out of an economic downturn like this one.
Look to dividends
Once you’ve found that blue-chip stock that offers share prices far below 52-week highs look to the company’s dividend history. Ideally, you want to find a stock that’s a Dividend Aristocrat. That means the company has increased its dividend each year for the last five years.
This can be easier said than done, especially if you want high passive income from your dividend. But it’s not impossible, especially if you look at real estate investment trusts (REIT). These tend to offer high dividend yields, as 90% of their net income must be paid out to shareholders, usually in the form of dividends.
So, now you need to find a blue-chip stock REIT with a high dividend yield. Does that sound impossible? Not at all.
Granite REIT
If there’s one stock out there that’s a strong buy these days, it has to be Granite REIT (TSX:GRT.UN). This Dividend Aristocrat has decades of growth behind it, with the stock seeing more and more share growth during this recovery.
The industrial REIT continues to see a strong leasing pipeline, new construction on the way, and strong operating levels. The balance sheet also remains in strong form, making it an attractive buy at these levels. Shares are up 5% in the last year but are still down 14% since 52-week highs.
With a dividend yield of 4.25% as well, you could gain serious passive income in returns and dividends. If you wanted to make $555 in passive income each month from this stock, here is what you would have to do.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| GRT.UN – now | $76 | 436 | $3.30 | $1,438.80 | monthly | $33,136 |
| GRT.UN – highs | $88 | 436 | $3.30 | $1,438.80 | monthly | $38,368 |
To create $555 per month then, or $6,660 per year in passive income at these levels, investors would need to set aside $33,136 for 436 shares on the TSX today. That would create returns of $5,232 to reach 52-week highs and $1,438.80 in dividends. That’s a total of $6,670.80 in annual passive income, or $555.90 each month!
