Passive Income: Earn 5.79% Per Year the Easy Way

Creating passive income and earning 5.79% annually is possible if you invest in a Big Bank stock and a real estate investment trust.

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

TSX companies get funding support when the investing public buys their shares. The established or matured ones reciprocate by sharing a portion of their profits through dividends. Investors can then create passive income the easy way.

Besides the recurring income stream, you derive capital gains when the stock appreciates. If the price drops, the dividends serve as a financial cushion. You can even reinvest the dividends and not collect them for dividend growth compounding. Moreover, there is capital preservation when you don’t touch the principal.

The Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and True North Commercial (TSX:TNT.UN) are excellent prospects for dividend investors. Canada’s second-largest bank has more than 160 years of dividend track record, while the real estate investment trust (REIT) boasts a solid tenant profile.

If you own shares of both, you will earn 5.79% annually. A $25,000 investment in each will produce $2,895 in passive income. Dividend investing is less tedious. You sit and receive regular income streams.

A cut above the rest

TD is a blue-chip asset, and therefore, a cut above the rest. The $158.36 billion bank started paying dividends in 1857. You can buy TD ($87.01 per share) today and never sell again. The dividend yield is 3.63%, while the payout ratio is less than 40%.

The bank has shown brightest during the 2008-2009 financial crisis. It was the only company that reported top and bottom lines growth amid the financial meltdown. In 2020-2021, its lower risk profile was evident again. Current TD investors enjoy a 25.74% year-to-date gain, while the trailing one-year price return is 44.01%.

TD has a broad geographic footprint, with dominance in North America’s retail banking industry. Likewise, the bank’s strategy is anchored on a proven business model, says TD Bank Group’s Group President and CEO Bharat Masrani. In Q3 fiscal 2021, the U.S. retail net income rose 95% compared to Q3 fiscal 2020.

Thus far, after three quarters, TD’s net income reached $10.5 billion or a 55% versus the same period in fiscal 2020. It also gained scaled expertise in equipment leasing and finance following the acquisition of Wells Fargo’s Canadian Direct Equipment Finance business.

Cash cow

True North is a pure dividend play. At $7.44 per share, the $652 million REIT pays a super-high 7.98% dividend. This real estate stock is a cash cow if you an instant to your disposable income. Also, any investment amount will double in nine years. Performance-wise, the stock displays stability thus far this year with its 24.65% year-to-date gain.

The REIT’s primary strategy is to expand and pursue its urban growth strategy. Its high-quality tenant base is a competitive advantage. True North derives 76% of total revenues from government and credit-rated tenants. Canada’s federal government and four provincial governments are anchor tenants in some of the 45 leased properties.

In the six months ended June 30, 2021, the occupancy rate is a high of 97%, while the weighted average lease term is 4.7 years. While revenue and net operating income (NOI) declined 1% versus the same period in 2020, it still indicates stability.

Reduce overall risk

The stock market is not without risks because prices rise and fall. However, with dividend stocks, you can reduce the overall risk. For example, TD and True North’s payouts can compensate for the drop in the investment value when their share prices decline.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

dividends grow over time
Dividend Stocks

1 Magnificent Dividend Stock That’s Down 10% and Trading at a Once-in-a-Decade Valuation

This dividend stock may be down around 10%, but there is a huge future opportunity for those wanting growth as…

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Future

The TSX’s dividend pioneer and first Dividend King are must-haves in an RRSP to ensure financial security in retirement.

Read more »

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »