Dividend investing is one way of earning passive income without lifting a finger, and all you need is capital or investible funds to start the ball rolling. Assuming the desired annual passive income is $5,000, the share price and yield of the dividend stock must be at least $25,000 and 10%, respectively.
The investment in the example is $50,000 (2,000 shares), although only some have that amount to invest. However, if you have limited capital but time is on your side, you can still achieve the goal of getting $5,000 in passive income.
Investment prospect
MCAN Mortgage Corporation (TSX: MKP) trades at $15.35 per share (+4.73% year to date) and pays a generous 9.36% dividend. Assuming you can only purchase 955 shares (total investment of $14,659.25) and the yield remains constant, your investment timeframe should be 14 years.
The added premise is that you don’t pocket the dividends but instead reinvest them by purchasing additional stock. With a higher exposure to MCAN, you should be getting $5,011.07 in passive income every month by 2037. Since the payout frequency is quarterly, it translates to $1,252.77 every three months.
The strategy of converting dividends into steady income requires a longer investment horizon. MCAN has never missed paying a dividend since 2012, so its dividend track record should lend confidence to investing in the $530.1 million loan company.
Federally regulated financial institution
As a loan company, MCAN falls under the Trust and Loan Companies Act (Canada) and is subject to the guidelines and regulations of the Office of the Superintendent of Financial Institutions Canada (OSFI). Moreover, it also operates as a Mortgage Investment Corporation (MIC).
All MICs are under the Income Tax Act (Canada) and are entitled to deduct the dividends payable to shareholders from their taxable incomes. Management’s primary goal is to be the preferred mortgage lender and investor in select markets across Canada.
Specialized portfolio
MCAN’s specialized portfolio comprises mortgages, loans, private investment funds, and real estate investment trusts (REITs). The mortgage solutions or product offerings include home ownership, residential construction, and commercial lending.
The managed portfolio of REITs generates long-term investment income and a source of capital appreciation. MCAN’s private investment funds focus on lending and developing Canadian communities. It has an ownership interest in MCAP, Canada’s largest mortgage financing company.
Besides its unique structure and business model, MCAN boasts a lower-risk profile because it’s the only OSFI-regulated MIC. For the full-year 2022, the net Corporate Mortgage Spread Income rose 41.3% year over year to $57 million. MCAN’s spread income should have been higher if not for the losses from the REIT portfolio.
However, despite the continued volatility in the real estate market, management expects to realize the benefits of solid cash flows and distributions from the investments because MCAN is a long-term investor. Also, the business has several levers, including floating rates, that help manage the net mortgage interest income in a high-interest rate environment.
No overnight success
Building wealth or realizing the desired passive income stream doesn’t happen overnight. The formula to success without active participation is a reliable dividend payer like MCAN and a fair amount of time.
