For a Shot at $5,000 in Annual Passive Income, Buy 10,450 Shares of This TSX Stock

Canadian investors can churn out $5,000 in annual passive income by making a big bet on Extendicare Inc. (TSX:EXE), a promising TSX stock.

Ambrose O'Callaghan

Ambrose O'Callaghan graduated with a BA in Political Science from McMaster University. After that, he jumped into the banking world. He worked from the front line to an investment associate role. After that, he found a way to marry his experience and knowledge in the world of banking and finance to his love and passion for writing. Ambrose is a passionate believer in Warren Buffett's value investing model.

Published June 8, 2023 3:45 pm EDT

| More on: EXE

Volatility has picked up on the S&P/TSX Composite Index in the latter half of the spring season. In this environment, Canadian investors might want to pursue a consistent stream of passive income for some stability going forward. Today, I want to discuss how investors can have a shot at $5,000 in annual passive income by snatching up over 10,000 shares in one TSX stock that offers monthly dividends. Let’s jump in.

How has this TSX stock performed over the past year?

Extendicare (TSX:EXE) is the TSX stock I’d look to target to meet this lofty passive-income goal. This Markham-based company provides care and services for seniors in Canada through its subsidiaries. Shares of this TSX stock have climbed 8% month over month as of early afternoon trading on June 8. The stock is up 11% so far in 2023. Investors can see more of its recent performance with the interactive price chart below.

Here’s why I’m excited about Extendicare for the long term

Canadian investors should be eager to get in on the burgeoning long-term-care (LTC) market. Indeed, Canadian senior population growth has erupted in recent decades. It is expected to rise above 10 million before 2040. Grand View Research recently valued the global LTC market at US$1.11 trillion in 2022. The same report projected that this market would deliver a compound annual growth rate (CAGR) of 6.6% from 2023 through to 2030.

This company unveiled its first-quarter fiscal 2023 earnings on May 4. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed $10.8 million year over year to $31.0 million. This was powered by “higher recovery of COVID-19 costs of $3.6 million” as well as previous LTC funding. COVID funding support will be phased out going forward, but Extendicare and its peers in this space should continue to receive support and funding for direct hours.

Extendicare saw average LTC occupancy rise by 60 basis points (bps) to 95.1% from the fourth quarter of fiscal 2022 and a whopping 430 bps in the year-over-year period. It also posted home healthcare volume growth of 2% to an average daily volume of 26,043 in the first quarter.

In the first quarter of 2023, revenue rose 6.2% to $324 million and adjusted funds from operations climbed to $20.8 million, or $0.24 per basic share, compared to $12.5 million, or $0.14 per basic share, in the previous year. Investors should be pleased with this company’s first-quarter performance in 2023. Moreover, this TSX stock currently possess a favourable price-to-earnings ratio of 9.3.

Extendicare can deliver big passive income. Here’s how…

This past May, Extendicare’s board of directors declared a monthly cash dividend of $0.04 per share. That represents a tasty 6.6% yield. This stock was trading at $7.28 per share in early afternoon trading on June 8. To reach our lofty annual passive-income goal, we need to snatch up 10,450 shares of this TSX stock for a purchase price of $76,076. That would gobble up almost the entirely of our cumulative Tax-Free Savings Account room if we took that route.

As a side note, investors should seek to diversify in any portfolio. That goes for one that is growth or income oriented. This scenario is just designed to illustrate how you can obtain a particular goal based on a given stock’s current monthly yield.