If you’re a millennial investor, then you’re likely not all that concerned about retirement. And fair enough. You have plenty keeping you busy — especially when it comes to finances, with an economic downturn, rising inflation and interest rates all on your mind these days.
However, there is a way to create cash for retirement — even early retirement. That comes from finding the right dividend stock. You can drip feed into it whatever you can afford over the years, providing you with passive income that can be used to reinvest again and again.
What is drip feeding?
Let’s first look at what drip feeding is in the first place. There are two parts of drip. The drip feeding itself, and the DRIP feeding. Yes, there’s a difference. Drip feeding is dripping in a little cash on a regular basis. This allows you to get value over the long term. If you buy at a higher price now and again, that will be made up when you invest in the stock perhaps a month later after some shareholders sell.
Then there is DRIP feeding. This stands for the dividend-reinvestment plan (DRIP). That’s where you take the dividends from your dividend stock and feed it back into the stock again and again. You would do this on a regular basis as well, usually when you make those automated contributions.
How much to consider?
If you’re going to achieve this as a millennial investor, you need to make sure you treat investing like a bill payment. This is the best way to ensure it works on a long-term basis. If you’re doing this, it means you need to create a budget and see what you can afford to put into your investment accounts month after month, without exception.
For example, if you make $60,000 per year, the average Canadian salary approximately as of 2021, you could put aside 7% of each pay cheque. That would create an annual investment of $4,200 per year. Not much now, but over time, that seriously adds up. Do this for two decades without investing, and that would add up to $84,000 alone!
But we are reinvesting. And, in this case, here is the dividend stock I would choose.
Automotive Properties REIT
Diversification is key for investment, that’s absolutely true. So, why would I focus on the automotive sector for millennial investors? It’s because of electric vehicles (EV), of course. There is going to be a huge transition over the next decade and beyond. Practically every single large car manufacturer has committed to a practically full fleet of EVs by 2035. That means everyone is going to need a new car as they transition away from gas and towards EVs.
Automotive Properties REIT (TSX:APR.UN), however, doesn’t invest in just one manufacturer or another. It invests in automotive properties across Canada. Because of this, you get income from every property out there. The company now offers up a 6.54% dividend yield as well, dished out on a monthly basis. This makes it super easy to reinvest and use the drip feed and DRIP scenarios discussed earlier.
Yet shares are down 7% in the last year, despite trading up 119% since coming on the market. Further, the company is valuable trading at 6.15 earnings at the time of writing. Taken together, this is a superior long-term investment for millennials seeking early retirement.