Earning passive income is amazing because it is just that: passive. Generally, in life, earning income always requires work, time, and energy. Fortunately, for investors in the stock market, it is possible to earn extra monthly income with very little work.
Of course, nothing in life comes for free. You do need to put in a little effort. But, for the value of time and effort, you can earn outsized gains by investing.
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Buy passive income stocks with great businesses
First, you need to investigate and research investments that yield dividends or distributions. That takes time. However, only a few hours of digging can really give you a good baseline understanding. Don’t just buy the yield, but truly understand the business and the durability of its cash flows. There are tons of resources online (like Fool.ca) that can really give you the upper hand on some great ideas.
Put excess capital to work
Second, you need some capital. It comes down to how much capital you are willing to tie up in stock in order to capture dividends in return. With as little as $30,000, you could earn $130 a month or more in monthly income.
Sure, that doesn’t seem like a huge amount. However, combine that with capital gains and it is entirely possible to earn high-single-digit or low-teens returns on your capital every year. Here are two stocks that could be foundational for a passive income investment portfolio.
Real estate is a great passive income investment
Dream Industrial REIT (TSX: DIR.UN) is yielding a 4.16% dividend today. That means if you put $15,000 into this passive income stock, you could earn around $52 a month.
You are likely to do even better over the long term, especially given the fact that industrial real estate is red hot right now. E-commerce warehousing demand and on-shoring manufacturing trends are leading to very high occupancy and strong rental rate growth in this segment.
So much so that Dream Industrial saw its net asset value increase 6.7% in just one quarter. This company has really well-located properties in Canada, the United States, and Europe.
It is quickly expanding into Europe where spreads between debt and cash flows are very wide. Its average cost of debt is below 1.5%! As a result, Dream could see solid +10% growth in annual cash flows over the next few years. All in, it is an attractive passive income play on industrial real estate.
Infrastructure delivers steady cash flows and higher yields
If you are willing to venture into energy infrastructure, you can really capture some elevated yields. Enbridge (TSX: ENB)(NYSE: ENB) pays a 6.6% dividend. Now that dividend is paid quarterly.
However, if you invested $15,000 into Enbridge today, you could average out a monthly dividend return of $82.50. While Enbridge has faced some challenges in 2021 (Line 5 dispute, Line 3 court challenges), a lot of the risks have been alleviated over the year.
It has a number of major capital projects that will be completed by year-end (including Line 3). Likewise, it just acquired an interesting energy export terminal to its business. Consequently, investors should enjoy an attractive boost to cash flows in 2022.
That could also mean a nice boost to the dividend rate. To remain relevant for a greener future, Enbridge is investing heavily in renewable power, natural gas distribution, and carbon-reducing technologies and alternatives. For passive income, this is a solid Canadian stock to just buy and hold.
The Foolish bottom line
Of course, there are many ways to go about building a passive income stream. I would probably recommend a more diversified portfolio than this. Yet, the point is, with minimal upfront work and some excess capital, you can build an easy annual income stream that can help supplement your income and your lifestyle. Once you’ve started, just relax and collect those dividend cheques!
