Once upon a time, being a landlord was considered the best way to start a passive-income stream. While the allure of real estate is still hard to ignore for most investors, it’s not a realistic option for many investors. Even if you have as much as $100,000 to invest, you might not be able to start a consistent income stream from the real estate industry.
And even if you can invest more and become a landlord, the passive income stream is not truly hands-off. You can either pay for a property manager, a cost that will cut into your profits, or become an “active” landlord.
Dividend income, though not as old as real estate, is another tried-and-tested way to start a passive-income stream. And this one is truly hands-off. And with the right stock, you can easily start a daily double-digit passive income with less capital than you would need for real estate.
One right stock is Timbercreek Financial (TSX:TF).
Timbercreek Financial is currently offering a mouthwatering yield of 7.49%. At this yield, the company can give you about $10.2 a day if you invest $50,000 in it. That’s much less than the minimum amount of capital you might need to start a passive income from real estate right away.
The payout ratio for the dividends, while not very ideal at 150%, is still relatively sustainable considering the company’s dividend history. It has maintained its dividends for payout ratios above 100% previously as well. The company also hasn’t changed its monthly payout in the last five years.
The company is currently trading at $9.2 per share, so if you are thinking about reinvesting, you can virtually add one stock daily to your stake in the company. At $0.0575 a share, you can virtually add about $21 to your yearly dividend income by buying 365 additional stocks through reinvesting (assuming the price doesn’t cross $10 a share).
Timbercreek Financials is a non-bank commercial lender with a mortgage portfolio of about $1.1 billion. Thanks to the market capitalization of $757 million, the company is priced quite close to the size of the portfolio it operates. The portfolio is composed of 117 mortgage properties — about half of which are multifamily properties.
Other asset classes include retail, unimproved land, and office properties. 86.7% of the properties are income-producing, making the risk of default quite low. The company has mostly invested in mortgages for properties in the urban areas.
Timbercreek Financial, while not as secure as a Dividend Aristocrat, is still a very safe dividend stock. Multifamily properties tend to be one of the most secure commercial real estate asset classes and see relatively low turnover rates, even during harsh market conditions (though rental yield might suffer). Retail properties would have weighed the portfolio down, but we are already entering the economic recovery phase, and retail is recovering.