Get $600 a Month in Passive TFSA Income From This Recession-Proof REIT

TFSA income investors should consider NorthWest Health Properties REIT (TSX:NWH.UN) as a top holding amid these difficult market conditions.

| More on:
Payday ringed on a calendar

Image source: Getty Images

Just because the probability of a recession has increased doesn’t mean you should settle for meagre returns from “risk-free,” fixed-income securities, which now possess absurdly low and unrewarding yields.

For rattled income investors who are looking to reduce their exposure to the equity markets, today’s market can make one feel like they’re between a rock and a hard place. Either you take the risks that inherently come with stocks, or you settle for “safe” bonds that’ll struggle to outpace the rate of inflation.

Gone are the days of sky-high yields with zero risk. So, today’s income investors are going to need to get creative to tilt the risk/reward trade-off in their favour.

Fortunately, there are asset classes out there that can offer investors a generous amount of income with a relatively low degree of volatility relative to the fragile stock market, which has been driven primarily by impossible-to-predict macro events. Enter REITs, an asset class that’s favoured by retirees and risk-averse income investors alike for their massive yields and low betas.

While REITs tend to exhibit less volatility relative to your average stock, it’s important to remember that REITs aren’t risk-free assets as bonds are. In times of recession, all bets are off with the REITs, and the low betas during typical market environments usually become meaningless, as investors throw in the towel on real estate plays after liquidating their stocks.

In times of crisis, certain REITs could fall just as hard as stocks. So, it’s vital to consider the defensive characteristics of the real estate sub-industry you’re looking to invest in.

Migrating NorthWest for bigger and safer income

One real estate sub-industry that’s more recession-proof than most is the defensive field of healthcare. Health property REITs like NorthWest Health Properties REIT (TSX:NWH.UN) have defensive characteristics and massive distributions (NorthWest has a 6.9% yield at the time of writing) to dampen downside as investor appetite for “risky” securities free falls in a market crash.

NorthWest has a stellar portfolio of health properties (hospitals, clinics, offices, etc.) across the globe that will continue to generate ample AFFOs, even if the global economy were to grind to a halt.

The demand for health services isn’t dependent on the state of the economy, so as long as management avoids operational hiccups, the REIT should outperform most other stocks come the next downturn thanks to its stable cash flow stream that continues to grow.

Not only is NorthWest in a real estate sub-industry that enjoys secular tailwinds (ageing Baby Boomers and a soaring global population), management is serious about growing its property portfolio through various outlets such as M&A. Such growth initiatives will better support the massive distribution, which is already on sound footing, and allow the REIT to raise its distribution by a generous amount at some point down the road.

Foolish takeaway

NorthWest is one of the TSX index’s best-kept secrets. It’s a “growthy” income play with defensive characteristics, and the price of admission isn’t too high. A 6.9% yield invested with a $100,000 TFSA comes out just shy of $600 per month of tax-free income, that’ll be yours to collect, regardless of what the economy has in store.

So, if you’re being kept up at night about rising geopolitical tensions, tune out and get paid in cash with a name as dependable and lowly correlated as NorthWest REIT.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned. NorthWest Health Properties is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

financial freedom sign
Dividend Stocks

Million-Dollar TFSA: 1 Way to Achieve to 7-Figure Wealth

Achieving seven-figure TFSA wealth is doable with two large-cap, high-yield dividend stocks.

Read more »

analyze data
Dividend Stocks

How Much Will Manulife Financial Pay in Dividends This Year?

Manulife stock's dividend should be safe and the stock appears to be fairly valued.

Read more »

food restaurants
Dividend Stocks

Better Stock to Buy Now: Tim Hortons or Starbucks?

Starbucks and Restaurant Brands International are two blue-chip dividend stocks that trade at a discount to consensus price targets.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,500.50 in Passive Income

If you have $10,000 to invest, then you likely want a core asset you can set and forget. Which is…

Read more »

Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

TFSA Set and Forget: 2 Dividend-Growth Superstars for the Long Run

I'd look to buy and forget CN Rail (TSX:CNR) and another Canadian dividend-growth sensation for decades at a time.

Read more »