Why I Continue Buying Shares of This Magnificent Dividend Stock Hand Over Fist

Some dividend stocks give attractive passive income, encouraging you to keep buying more shares of those stocks. Here is one such stock.

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Investing is not a one-time event but a routine activity. Imagine paying an entire year’s electricity bill in one go. That would burn a hole in your pocket and crunch your budget. Investing is like paying rent and utility bills every month. A small amount every month can make investing in shares easy and efficient, and has other benefits, too. 

Why keep buying shares of the same stock? 

You have a $6,500 Tax-Free Savings Account (TFSA) limit for 2023. Had you exhausted this limit at the start of the year when the market showed bullish momentum, you would have missed the opportunity to buy at the dip. 

The TSX Composite Index saw five instances of a dip and rally within the 8–11% range in the last 12 months. An 8–10% dip followed an 8–10% rally. In this market volatility lies an opportunity.  

For instance, you purchase shares at a price of $100/share at the start of the year. A TFSA investment of $6,500 would buy you 65 shares ($6500/$100). But if you divide your investments throughout the year and decide to buy the shares of the same company whenever the stock price falls to $92 or below, you can buy 70 shares ($6500/$92) of the same stock. You got an extra five shares for the same investment for which you would otherwise have to shell out $7,000.   

Hence, it is efficient to continue buying shares of the stock you are bullish on as and when it falls in bearish momentum. 

A magnificent dividend stock to buy hand over fist 

I am bullish on CT REIT (TSX:CRT.UN), the real estate arm of Canadian Tire. The rising interest rate has pulled down property prices by double digits. Several Canadian REITs reduced the market value of their investment properties, which impacted their net income. Some commercial REITs even slashed their distributions as they saw a reduction in occupancy rate. Retail REITs like SmartCentres are seeing an increase in the payout ratio (from 87.2% in 2020 to 96.7% in 2022) as the higher interest rate is increasing their interest expense.   

REITs pay monthly distributions as they pass on a significant portion of their rental income and proceeds (gain or loss) from the sale of the property to shareholders. You rarely see REITs increasing distributions annually while maintaining a stable payout. But CT REIT has been growing its distributions at a compounded annual growth rate (CAGR) of 3.1% in the last nine years. During this period, the stock price surged from $10 to $18. 

CT REIT grew distributions as it enjoys an over 99% occupancy rate, of which Canadian Tire occupies over 92% of the area. As it has a regular tenant, any new store development brings higher rental income, which it passes on to shareholders. CT REIT is spending $31 million this year on expanding four existing Canadian Tire stores, increasing the gross leasable area by 109,000 square feet. This will help the REIT grow its rental income this year, too.  

This dividend growth is why you can keep buying CT REIT stock and increase the count of income-generating shares. 

When and how to buy shares of this dividend stock?

Now that you have decided which dividend stock to buy, the question is when and how to buy. The REIT has been trading at an average price of $15.5–$16.5. If you invest $500 quarterly, you can buy the REIT’s shares within this price range and lock in a yield of over 5%. Buy these stocks through a TFSA to make your passive income tax-free. Your $2,000 annual investment will buy you 123 CT REIT shares and help you earn $105/year in passive income. 

As long as CT REIT enjoys an over 99% occupancy rate and keeps its payout ratio below 90%, you can keep buying shares of this REIT. The REIT maintained its distribution payout of around 75% in 2022. If you accumulate 600 shares of CT REIT by investing $500/quarter for five years, you could earn $576 in annual passive income, assuming the REIT maintains its 3% distribution CAGR. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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