Canadians can expect a sustained increase in the price of goods and services in 2022. However, people can still beat surging inflation without much effort. If finances allow, purchase dividend stocks to produce passive income. The cheapest but lucrative choices are True North Commercial (TSX: TNT.UN) and Diversified Royalty (TSX: DIV).
The real estate investment trust (REIT) and the multi-royalty corporation collect or generate rather than consume cash. Because of the super-high dividends (7.915% average), a $25,000 investment in each stock will produce $3,957.50 in passive income. The amount translates to $10.99 per day.
High-quality tenant roster
True North Commercial is fairly small ($638.99 million market capitalization), but it stands out because of its high-quality tenant base. The REIT owns and operates 45 office properties in urban areas and select secondary markets. Among its top tenants are the federal government of Canada and four provincial governments (Alberta, B.C., New Brunswick, and Ontario).
The top 20 tenants account for 69% of total revenue, while 76% of True North’s portfolio revenue comes from government and credit-rated tenants. Industry-wise, the tenants are in public administration (36%), services (26%), financial, insurance & real estate (17%), and manufacturing (13%).
As of September 30, 2021, the occupancy rate is 96%. and the weighted average remaining lease term is 4.6 years. Another strong point is the high overall retention rate (80%). Apart from the 99.5% rent collections in Q3 2021, the REIT reported positive operating results.
Leslie Veiner, True North’s CEO, said, “The REIT’s high-quality tenant roster of government and credit-rated tenants has continued to allow us to deliver strong operating results and industry-leading rent collections.” With vaccination rates increasing, Veiner expects increased return-to-work trends and leasing activity.
This real estate stock trades at $7.35 per share and pays an 8.08% dividend. Assuming you invest $25,000, the dividend income is $2,020. If you hold True North in a Tax-Free Savings Account (TFSA), the earnings are tax free.
Price-friendly dividend stock
Diversified Royalty is perhaps the most price-friendly dividend stock on the TSX. At only $2.84 per share, the dividend yield is an ultra-high 7.75%. Management also increased its dividends twice in 2021, 5% in August, and 4.7% in November. The $347.19 multi-royalty corporation collects royalties from six royalty partners.
The partners are multi-location businesses and franchisors in North America. In the nine months ended September 30, 2021, Mr. Lube, Mr. Mikes, Sutton, Nurse Next Door, and Oxford Learning Center reported revenue increases versus the same period in 2020. Only AIR MILES reported a revenue decline for the period.
Diversified reported a 20.39% increase in adjusted revenue versus the first three quarters last year. Because of improving market and business conditions, net income reached was $15.3 million compared to a net loss of $9.7 million.
Sean Morrison, president and CEO of Diversified, said, “We are optimistic that our royalty partners are well positioned to continue their respective recoveries, as restrictions related to the COVID-19 pandemic are lifted.”
Prepare for a nasty impact
If economists believe that inflation will continue to increase faster than the normal clip in 2022, Canadians must prepare for a nasty impact. BMO chief economist Douglas Porter thinks it will also stay uncomfortably high. Thus, passive income from dividend stocks is the perfect hedge against inflation.
