Home » Investing » Want $500 in Monthly Passive Income? Buy 5,177 Shares of This TSX Stock
Do you want to earn $500 in monthly passive income? Consider buying 5,177 shares of this stock and also get a chance for a 24% upside.
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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.
Latest posts by Puja Tayal (see all)
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Are you nearing your retirement and in the process of converting some of your wealth into a pension? Then,don’tjust rely on fixed-income securities.Diversifyyour wealth across multiple passive-income sources. When you think about earning without working, what options come to mind? Landlords, money lenders, and investors — each has its pros and cons. But you can take the pros of two, combine them, and build yourself different income sources.
How to earn passive income from TSX
As a landlord, you might have to shell out money for legal work, property tax, maintenance, and other charges. There is also the risk of your property remaining vacant. Moreover, it isn’t easy to buy or sell a property. You can skip all this and get exposure to rental passive income for less than $12 per unit and with the liquidity of a stock.
The TSX stock exchange offers several passive income sources, fromreal estate investment trusts (REITs)to dividend stocks to dividend exchange-traded funds.Slate Grocery REIT(TSX:SGR.UN)is a landlord for 117 properties in the United States. Its tenants are grocers and grocery-anchored stores. And it has the advantage of limited construction in the United States.
Its top two tenants,KrogerandWalmart, account for 18.6% of its gross leasable area, creating a well-diversified portfolio of tenants.Since it earns rent inU.S.dollars, it also pays distributions to its unitholders inU.S.dollars. However, Canadian unitholders get the payouts in Canadian dollars, benefiting from the exchange rate.
Its distributions are relatively stable compared to other REITs, as grocers are sticky tenants. While the REIT saw a 10.4% increase in rental spread, it did not increase its distributions to maintain some flexibility. Its payout ratio increased to 81.1% in December 2023 from 78.8% a year ago as the fair market value of properties continued to fall.
Slate Grocery REIT has a high retention ratio of 94.7%, as grocers and grocery-anchored stores are sticky. Hence, the REIT is a good stock to earn a monthly passive income.
How to earn $500 in passive income with this TSX stock
Slate GroceryREIT offers an annual dividend of $1.159 per unit, a 10.88% yield amid the current unit price of $10.86. If you buy 5,177 units of this REIT today for $10.86 per unit, you can get $513 in passive income from next month onwards. However, youmay have toshell out $56,378 to buy these units.
Even though the REIT does not grow its distributions, it offers the exchange rate volatility as it paysU.S.dollar dividends in the Canadian dollar.
Now is an opportune time to buy the Slate Grocery REIT as the unit trades at a 14.6% discount from its February high of $12.89. TheU.S.Fed has kept interest rates unchanged,andtheMarch inflationnumber of 3.5% has put downward pressure on several stocks.
Opportunity for capital appreciation
Slate Grocery REIT’s stock price reflects the value of its property portfolio. High interest rates negatively affect property prices as mortgages become expensive.Even Slate Grocery REIT saw a decline in thefair market value of theproperty.However, the company has no plans to sell the properties. Once interest rates fall, the real estate market will recover, driving demand. That could help the Slate Grocery REIT unit price return to its average of around $13.5, representing a 24% upside.
Consider investing in the Slate Grocery REIT through your Tax-Free Savings Account (TFSA),asyou can use the $500 distribution to buy differentstocks every month. While the TFSA contribution room is $7,000 in 2024, you could invest $13,000 through TFSA after including the $6,000 distribution.Thiswill help youcompoundyour returns tax-free.
