7% Yield: 2 Income Stocks to Buy in February

After 10 years of compounding, a 7% yield can give you a monthly payout equivalent to your monthly investment today.

Puja Tayal ❯

Puja Tayal has been writing for Motley Fool Canada since 2020. Her love for writing inspired her to start a college newsletter. With a Bachelors's degree in Finance and Accounting and CFA Level 1, Puja strives to transform stock discussions into breakfast table chats through her articles. A movie buff and a finance geek, Puja weaves superheroes, cartoons, and novels to tell you a story touching different aspects of investing, from portfolio and tax planning to retirement savings. Follow her on Twitter for more stories.

Published February 3, 8:15 pm EST

A dividend seeker always looks to grab high yields. A stock that can give you an assured 7% annual payout brings stability to your investment portfolio. Whether you are new to stock market investing or a stalwart, everyone needs a safe zone they can fall back on at times of volatility.

The 7% yield

Let’s take a scenario where you invest $200 a month on three stocks that give collectively 7% yield annually. These three stocks are from unrelated sectors. If one sector turns bearish, the other sector can keep giving the payout. The money keeps coming in every scenario.

A $200 monthly investment for 10 years would convert to an invested amount of $24,000. If you reinvest the amount, it will compound to $34,797 at a 7% return. From the 11th year, if you start taking the payout at 7% yield, you can get around $200 per month.

That’s the return a 7% yield can give. But what the $200 could buy you today won’t be able to buy you 10 years from now. You need to invest in stocks that can give you the buying power of $200 and not the absolute $200.

Two income stocks that can give the buying power of a 7% yield

The stock market has income stocks that grow with the economy and grow their dividends as per the economy.

Slate Grocery REIT

Slate Grocery REIT (TSX:SGR.UN) is a retail REIT trading on TSX. However, its portfolio of 116 properties is in the United States and its tenant base comprises names like Walmart and Kroger. These grocers are resilient to economic crises. The REIT has a strong occupancy ratio of 94.6% and stable rental income.

The REIT is paying an annual distribution of $1.24, which converts to a yield of 8.8% as the stock trades below $14. To earn $1.24 in annual payout distributed in 12 monthly installments, you buy one unit of Slate Grocery REIT worth $13.68, the unit price at the time of writing this article.

How can this investment give you buying power? Slate Grocery REIT announces payout in U.S. dollars. However, Canadians are paid in Canadian dollars, giving you the benefit of a stronger U.S. dollar. In the last 10 years, the U.S. dollar has strengthened by 21% against the Canadian dollar, giving you the adjustment of the buying power.

Telus stock

Telus (TSX:T) is among Canada’s top three telcos that have an oligopoly in the market. It has been using the cash flow from subscriptions to reinvest in building network infrastructure, service its debt, and pay 60-70% of the free cash flow as dividends. The high interest rates and the 5G network rollout have stressed the payout and leverage ratio above its target range, but the company is looking to ease it. The falling interest rates will reduce the cost of servicing the debt. Moreover, the telco is restructuring to reduce debt and cut costs.

Telus stock is paying an annual dividend of $1.61, which converts into a yield of 7.7%. It also grows its dividend at a compounded annual growth rate of 7%, which takes care of the buying power. As for the compounding effect, it offers a dividend-reinvestment plan that can automate the process.

Investor takeaway

The above two income stocks are uncorrelated and give you geographic diversification. You could invest $100 each in the two stocks and build a passive-income portfolio that can give you the $200 buying power of today in 2035.