There are two main variables in the passive income equation: capital and yield, and both are directly proportional to the passive income. The more of either you have, the higher your passive income is likely to be. So if you have a lot of capital to work with, you may choose safer, more sustainable, and growth-oriented dividend stocks with relatively smaller yields.
However, with limited capital, big-dividend stocks can help you “balance the scales,” up to an extent. If you have about $120,000 to invest with three big-dividend stocks ($40,000 per stock), let’s see how it translates into a passive income stream.
A timber company
Acadian Timber (TSX:ADN) is at the starting point of the timber/lumber supply chain. The company manages 2.4 million acres of timberland in New Brunswick and Maine, about 1.1 million of which are owned by the company. This business model has certain strengths and weaknesses. Nevertheless, the stock has been quite stable, even more so than its more market-centric peers.
It’s also a decent dividend stock that has grown its payouts two times since 2017 and hasn’t slashed them once even though the payout ratio blew past 100% multiple times in the last 10 years. The current yield is 6.14%, which can get you more than $204 a month with $40,000 invested in this dividend stock.
Most big-dividend stock lists in Canada would be incomplete without a REIT, and this is no exception. The True North Commercial REIT (TSX:TNT.UN), with its massive 8% yield, can be a powerful asset to start a passive income stream.
The REIT also gets sustainability points, as it hasn’t slashed its dividends once since 2014, which already sets it above peers in the REIT market segment, many of which cut their dividends in the last two years. At its current yield, the REIT can offer you about $266 a month with $40,000 invested.
It has a modest portfolio of about 46 properties valued at about $1.4 billion. The geographic distribution is decent enough, but what really endorses its stability is the tenant base, the bulk of which is made up of government and credit-rated tenants.
An asset management firm
If you want to combine a reasonable chance of dividend growth with a mouthwatering yield, Fiera Capital (TSX:FSZ) is the perfect candidate. Its current 8.57% yield is 2% higher than the next most generous dividend aristocrat (Enbridge). The company has grown its payouts five times in the last five years and has recently joined the fold.
If you invest $40,000 in the company, you can expect a healthy monthly dividend-based income of about $285. There is only one weak link when it comes to Fiera, and it’s the payout ratio, which almost always remains north of stable. But since the company is growing its payouts despite this trend and the financials are steady, the ratio shouldn’t prevent you from adding this robust dividend payer to your passive income portfolio.
Collectively, the three dividend aristocrats can get you about $755 a month. That’s equivalent to about a 7.55% yield (averaged), which is relatively healthy. It’s a decent enough sum and can help you with several usual expenses – something a passive income is supposed to do. The three companies are smart choices, regardless of whether you are a seasoned investor or are just learning how to invest.