Use These 3 Stocks to Create Huge Passive Income

Stocks such as Northview Apartment REIT (TSX:NVU.UN), Altagas Ltd. (TSX:ALA), and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) are just oozing income.

| More on:

Passive income is perhaps the Holy Grail of investing. I don’t know anybody who would say no to an extra $500 … $1,000 … or even $5,000 per month.

Probably the easiest way to start your passive income journey is to start buying dividend-paying stocks. After years of compounding and additional investments, the trickle of passive income will soon become a stream, then a river. Finally, seemingly when you least suspect it, the river turns into a tsunami, as cash comes gushing in from all sides.

That’s where we’d all like to be.

There’s no better time to start building your passive-income empire than today. Here are three high-yield stocks to get you started.

Northview Apartment REIT

I’m a value investor, so there’s one simple reason why I like Northview Apartment REIT (TSX:NVU.UN). It’s cheaper than its competitors–a lot cheaper.

Northview has become Canada’s third-largest owner of apartment buildings with 24,300 units spread out over dozens of different markets. It still has significant exposure to northern Canada–with a third of income coming from the region–but it has diversified into a true nationwide player.

Northview is on pace to deliver $2.16 per share in funds from operations in 2016, while shares currently trade hands at $21.09. That gives the company a price-to-earnings ratio of just 9.8, which is very cheap. Its two larger competitors trade at closer to 20 times earnings.

This valuation difference also ensures investors get a very generous dividend. Shares currently yield 7.7%, paying out 13.58 cents per month each. Yet the dividend is quite sustainable with a payout ratio of just 75% of funds from operations. That payout ratio is about the same as competitors, yet they only pay dividends of 4-5%.


Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) persistently trades at a cheaper valuation than its peers.

Case in point: its price-to-earnings ratio. While competitors all trade between 11 and 13 times trailing earnings, CIBC shares are sitting below 10 times earnings. On a forward basis, CIBC shares are even cheaper.

Why the persistent discount? I think it’s because CIBC is a very Canadian-centric bank. Almost all of its operations are in Canada, except some wealth management offices in the United States. That’s changing thanks to its $4.9 billion deal to buy PrivateBancorp. Many analysts think CIBC overpaid for its U.S. prize, but I doubt we’ll be saying that in a few years.

In the meantime, investors can enjoy a dividend higher than any of its peers; it currently comes in at 4.8%. CIBC has also demonstrated excellent dividend growth over the last five years as well, hiking its quarterly payout from $0.90 per share to $1.21.


Like many other utilities, natural gas and power producer Altagas Ltd. (TSX:ALA) is taking advantage of low interest rates to expand its already impressive operations.

Altagas has three different divisions. Its largest–despite its name–is actually producing power; it has 1,688 MW of power-generation capacity from four different fuel types. This accounts for about 40% of earnings. Next is natural gas distribution, which operates in five different jurisdictions and has 565,000 customers. Finally, it operates pipelines for natural gas producers. These two divisions drive approximately 35% and 25% of earnings, respectively.

Altagas has a capital-expansion plan totaling between $2.6 and $3 billion; projects will really start to come online in 2018. This will increase EBITDA approximately 50% from 2015 levels.

The company has been a dividend-growth machine since 2010, increasing the annual payout from $1.32 per share to $2.10–a growth rate of 8% annually. With a payout ratio of 57% of adjusted funds from operations forecast for 2016, investors can count on the 6.3% yield. In fact, the company should easily be able to increase the dividend, especially after some of the expansion projects start producing income.

The bottom line

A portfolio that has equal positions in Altagas, CIBC, and Northview Apartment REIT would yield 6.3%, while providing historical dividend-growth rates that have exceeded inflation. That’s the kind of passive-income machine I can really get behind.

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 Nelson Smith has no position in any stocks mentioned. Altagas is a recommendation of Stock Advisor Canada.

More on Investing