A low-cost but effective way to generate monthly passive income is by investing in quality dividend stocks. Its imperative to identify companies that are fundamentally strong and recession-resistant, allowing them to maintain dividend payouts across economic cycles.
Here are the three best Canadian stocks that you can consider buying for monthly passive income.
Slate Grocery REIT
A real estate investment trust (REIT) that operates in the grocery segment, Slate Grocery REIT (TSX:SGR.UN) has a portfolio of 117 properties located in the United States. With an asset value of $2.4 billion, these properties span 15.3 million square feet.
Last June, Slate Grocery disclosed plans to acquire 14 properties in the southeastern United States for US$425 million, increasing the company’s exposure to high-growth regions such as Florida and North Carolina.
A widening portfolio of properties allows Slate Retail to pay investors a monthly dividend of $0.0975 per share, indicating a tasty dividend yield of 8.7%. Its tenants comprise 20 of the 25 largest consumer goods distributors globally, including Wal-Mart, Amazon, Home Depot, and Costco.
Slate Retail explains that its leasing spreads have consistently outpaced inflation. Around 1.8 million square feet of leasing was completed in 2022 at a weighted average rent spread of 9%. Moreover, around 39% of its leases expire in the next three years, and 96% of tenants are on net leases, which offers protection against rising operating expenses.
In addition to its dividend yield, Slate Grocery stock is also trading at a discount of 21% to consensus price target estimates.
Exchange Income stock
One of the best-performing TSX stocks in the last two decades is Exchange Income (TSX:EIF). The Canadian stock has returned over 2,000% to shareholders since April 2005, easily outpacing most major indices.
Exchange Income’s segments include Aviation Services & Aerospace, and Manufacturing. So, the company provides scheduled airline, cargo, charter service, and emergency medical services in Canada.
It also manufactures goods such as access mats, window wall systems, communication infrastructure, stainless steel tanks, and components used in sectors such as aerospace, defence, and healthcare.
Exchange Income has increased its dividends 16 times since 2004 and currently offers a yield of 4.7%. Despite its outsized gains, EIF stock is priced at 14.8 times forward earnings, which is very cheap.
EIF stock is also priced at a discount of 20% compared to consensus price target estimates.
TransAlta Renewables stock
The final stock on my list is TransAlta Renewables (TSX:RNW), which pays shareholders a monthly dividend of $0.078, indicating a yield of 7.5%. One of the largest clean energy companies in Canada, TransAlta, has invested in highly contracted renewable and natural gas power-generation facilities and other infrastructure assets.
The company is well diversified in terms of geography and counterparties. It has interests in 26 wind facilities, 11 hydro facilities, eight natural gas generation facilities, two solar facilities, one battery storage project, and a natural gas pipeline, which represent an ownership interest of 2,965 megawatts.
Despite a difficult macro-environment, TransAlta stock increased adjusted earnings before interest, tax, depreciation, and amortization by 5% to $487 million in 2022. An extended outage at its Kent Hills facilities led to a decline in cash flows. But this is a near-term headwind, and TransAlta is on track to end 2023 with adjusted earnings of $0.71 per share, up from $0.28 per share in 2022.