The Canada Revenue Agency (CRA) is providing $2,000 per month to Canadians in need via the Canada Emergency Response Benefit (CERB).
Many Canadians are grateful for the CERB income. However, the COVID-19 situation should be a wakeup call that it won’t be the last time that we get a recession or high unemployment.
It would serve everyone well if each can generate some passive income on the side to help out in good and bad times. With persistence, you can generate more than $2,000 every month!
Here is what you need to get started.
Money
Ironically, you need money to make money. Many Canadians are probably strapped for cash. However, if you’ve got some savings that are earning close to nothing after inflation from interest rates, then you might want to consider investing a portion of that for passive income.
A solid dividend stock for passive income
Algonquin Power and Utilities (TSX: AQN)(NYSE: AQN) provides a secure dividend of about 4.6%. Importantly, the utility stock is reasonably valued today.
It has earnings or cash flow that are largely unimpacted through economic cycles. Moreover, it pays a meaningful portion of its returns from dividends. So, investors don’t have to worry about selling the stock to get good returns.
The stock can be a passive investment from which investors buy at good valuations and sit back to collect passive income from the growing dividends.
Algonquin stock
Algonquin provides essential natural gas, water, and electricity generation, transmission, and distribution utility services to more than 800,000 connections in North America, primarily in the United States. These are rate-regulated utilities that generate predictable returns.
Moreover, its renewable and clean energy portfolio generates stable cash flow with 93% underpinned by long-term contracts and inflation escalations.
This year marks the 10th consecutive year of dividend increases for Algonquin. Additionally, going forward, it can increase its dividend by approximately 6% per year.
Stocks with bigger dividends
On a 4.6% yield, investors will need to invest about $521,739 to generate $2,000 of income a month.
Raising the yield to 11.8% will substantially reduce the capital needed by 61% to $203,390. However, stocks with higher yields either have slower growth or are facing greater near-term challenges.
This is something that you need to play around with. Chances are that the final yield of your income portfolio will be in the 3-6% range in a normal market for safe dividends.
For example, Brookfield Property Partners (TSX: BPY.UN)(NASDAQ:BPY) offers a 11.8% yield. However, no investors will put all their savings in it to get the high income. That’d be too risky.
The company’s core retail portfolio recently collected only 20% of its rent due to the COVID-19 disruptions. Brookfield Property has the liquidity — US$7.2 billion — to weather this downturn. However, it’ll have to allocate the capital strategically for dividends, share buybacks, debt obligations, and investments. There’s no guarantee that it won’t cut its dividend.
In Q1, it managed to generate enough profits to just about cover the dividend. However, there’s no doubt it’ll be a challenging year for the company. Its payout ratio for the last 12 months was 86%, which is more normalized.
The length of the COVID-19 disruptions, which is highly uncertain, will decide whether it’ll maintain its dividend or not.
The Foolish takeaway
Even after the dark times of COVID-19 are over, there will be another recession down the road. It’s never too late for Canadians to prepare and start generating some passive income on the side.
To get started, look for stocks that tend to increase their dividends. Typically, dividend stocks with higher yields are riskier, but you’ve got to investigate under the hood to decide if something is worth investing in.
Both Algonquin and Brookfield Property offer good income, but unquestionably, the latter is facing more challenges today.
