Dividend stocks continue to be hugely popular during this market volatility. The TSX today remains down by about 10% from 52-week highs, as of writing. This puts it in bear market territory and can mean there are some strong long-term deals that investors can pick up.
But if you’re an investor thinking long term, what exactly makes a dividend stock strong enough to weather these market downturns? And how can you use the downturn to your advantage?
Identifying a strong dividend stock
A strong dividend stock is one that has been around for years, ideally decades, and, in that time, made it through several market downturns and recessions. In that time, it’s proven to be a resilient stock that’s able to handle whatever the market has thrown at it.
This usually comes from companies that have proven to be essential to our everyday way of life. While this does indeed include infrastructure stocks, financial institutions, and energy, it also includes some forms of real estate.
That’s why today we’ll be looking at Granite REIT (TSX:GRT.UN) as a strong dividend stock option.
Why Granite REIT is an excellent choice
There are many real estate investment trusts (REIT) out there. Yet if you’re looking for a strong long-term option, I wouldn’t go with the REITs that are usually going to drop during economic downturns. These would be those connected mainly to the retail sector. However, it also can include residential properties.
Right now, both of these sectors aren’t excellent options. That’s why Granite stock is such a great one. Granite is an industrial REIT. Therefore, it handles industrial properties. These are properties that provide storage, assembly, and shipping capabilities. Not only are they still up and running no matter what the market holds, but there is a desperate need for more industrial properties across the country.
This strength was seen during its most recent earnings report. Granite stock reported $108.6 million in net operating income, up $92.8 million from the year before. Its same-property net operating income increased 7.7% as well, with funds from operations up to $77.6 million from $72.1 million. While there were net fair value losses from investment properties, this seems to be a short-term issue due to rising interest rates. Once stabilized, the company expects recovery even here. So, overall, the company went from a net loss to net income in the second quarter, proving its resiliency.
Creating monthly income
If you’re going to get long-term passive income from this dividend stock, the best way is to invest and reinvest over time. Let’s use the example of the next five years, looking at past performance to dictate what the future might hold.
Granite stock currently holds a dividend yield of 4.39%, with shares up 6% year to date. In the last decade, shares have increased at a stable rate at a compound annual growth rate (CAGR) of 7.6%. Meanwhile, its dividend has grown at a CAGR of 4% right now. Using this, we can see what the next five years could look like for an investment of $5,000.
| YEAR | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL | NEW SHARE PRICE | NEW SHARES PURCHASED |
| 1 | $73 | 68 | $3.20 | $217.60 | monthly | $5,000 | $78.55 | 3 |
| 2 | $78.55 | 71 | $3.33 | $236.43 | monthly | $5,577.05 | $84.52 | 3 |
| 3 | $84.52 | 74 | $3.46 | $256.04 | monthly | $6,254.48 | $90.94 | 3 |
| 4 | $90.94 | 77 | $3.60 | $277.20 | monthly | $7,002.38 | $97.85 | 3 |
| 5 | $97.85 | 80 | $3.74 | $299.20 | monthly | $7,828 | $105.29 | 3 |
Adding in those last additional shares, you’ll have 83 shares worth $8,739.07! In that time, you would now have $310.42 in annual income. This would create $25.87 in monthly dividend income. Yet returns would be $3,739.07. So, add on your annual dividend income of $310.42, and you have total passive income of $4,049.49. That’s total monthly income of $337.45! What’s more, you’ll have a strong stock in your portfolio, providing immense returns!
