The stock market is pretty volatile. But you can determine your stock market earnings by keeping expectations realistic. The one rule of the market is “time in the market beats timing the market.” While growth stocks may not be as predictable, Dividend Aristocrats are. They have a history of paying regular dividends. It is possible to get a hint that dividends are in trouble through their cash flows and dividend-payout ratio.
Top bets for passive income
BCE stock
Dividend Aristocrats like BCE (TSX:BCE) with +50-year dividend history are your top bets at earning passive income. The telco has spent billions of dollars to set up fibre infrastructure and 5G network. That creates an entry barrier, reducing competition. Its only competition is Rogers Communications, which recently acquired Shaw Communications.
Demand is not a concern for communication companies, as there is a significant dependency on the internet. The concerns are macroeconomic factors, like financial liquidity and inflation, that affect BCE’s expenses. The company has priced in the impact of higher interest rates and inflation and expects to continue growing its cash flows by 5%. While every year is different, BCE looks prepared to continue its 15-year-long trend of growing dividends at a compound annual growth rate (CAGR) of 5%.
CT REIT
Another top bet at earning passive income is CT REIT (TSX:CRT.UN), Canadian Tire’s real estate arm. Unlike other retail real estate investment trusts (REITs), CT REIT has the strong backing of its parent that gives it +90% occupancy, even before it completes developing a property. The REIT increases its distribution at a CAGR of over 3%. It has maintained the payout ratio at 74.5% and has no significant debt maturities in 2024, reducing the risk of refinancing the loan at a higher interest rate.
The REIT is facing a loss from declining property prices. But that is not affecting its distributions. So far, CT REIT is positioned to continue growing its distributions, even during a recession.
How to use the top bets to earn a $500 monthly passive income?
The dividend amount is up to the management’s discretion. But you can make a calculated guess on the possible earnings on dividend stocks by taking historical averages of the above two top bets. Assuming BCE grows its dividend at 5% CAGR and CT REIT grows its dividend at 3%, a $375 monthly investment for 11 years can earn you $500 in monthly passive income for a long time.
| Year | BCE Stock Price (3.2% CAGR) | Annual Investment | BCE Share Count | BCE Dividend Per Share (5% CAGR) | BCE Total Dividend | CT REIT Share Count ($16.5 Stock Price) | Dividend Per Share (3% CAGR) | CT REIT Total Dividend |
| 2023 | $61.11 | $4,500.00 | 73.64 | $3.87 | $284.98 | 17.27 | $0.87 | $15.03 |
| 2024 | $63.07 | $4,500.00 | 144.99 | $4.06 | $589.18 | 52.98 | $0.90 | $47.47 |
| 2025 | $65.08 | $4,500.00 | 214.13 | $4.27 | $913.64 | 108.35 | $0.92 | $100.01 |
| 2026 | $67.17 | $4,500.00 | 281.13 | $4.48 | $1,259.47 | 184.68 | $0.95 | $175.57 |
| 2027 | $69.32 | $4,500.00 | 346.05 | $4.70 | $1,627.83 | 283.34 | $0.98 | $277.44 |
| 2028 | $71.53 | $4,500.00 | 408.96 | $4.94 | $2,019.94 | 405.76 | $1.01 | $409.24 |
| 2029 | $73.82 | $4,500.00 | 469.92 | $5.19 | $2,437.07 | 553.46 | $1.04 | $574.95 |
| 2030 | $76.19 | $4,500.00 | 528.98 | $5.45 | $2,880.57 | 728.04 | $1.07 | $779.00 |
| 2031 | $78.62 | $4,500.00 | 586.22 | $5.72 | $3,351.85 | 931.18 | $1.10 | $1,026.25 |
| 2032 | $81.14 | $4,500.00 | 641.68 | $6.00 | $3,852.41 | 1164.66 | $1.14 | $1,322.07 |
| 2033 | $83.74 | $4,500.00 | 695.42 | $6.30 | $4,383.80 | 1430.35 | $1.17 | $1,672.37 |
BCE stock has surged at a 3.2% CAGR in the last 10 years. I took the average stock price and grew it by 3.2% from $61.11 in 2023 to $63.07 ($61.11 x 3.2%) in 2024. If you invest $4,500 in a year in BCE, you can buy 73.6 shares at an average price of $61.11. These 73.6 shares could earn you a dividend income of $285 at the end of 2023.
Reinvest for better passive income
Let’s say you reinvest the $285 dividend earned from BCE to buy CT REIT, which pays monthly distributions. This way, a $4,500 investment brought you 73.6 shares of BCE and 17.3 shares of CT REIT in 2023. You repeat this for 11 years and own 695.4 shares of BCE and 1,430 shares of CT REIT. Together, they earn $6,056 in annual dividend income, or a little over $500/month in 2034.
