When you are planning on developing a passive-income stream, the first thing to do is to set a reasonable goal. A lofty passive-income goal may encourage you to choose the highest available yields, which may not be the wisest choice when it comes to the long-term sustainability of your passive-income stream.
One example of a reasonable passive income goal is $50 a week, or about $200 a month. That’s a decent enough sum to cover some of your regular expenses, and it wouldn’t require more than half of your Tax-Free Savings Account (TFSA). A TFSA is naturally the best choice for a passive-income stream because it allows you to enjoy the benefits of additional income without raising your tax bill.
A fully-stocked TFSA would have about $88,000 right now. There are three stocks that can help you generate an easy $50-a-week income with less than half of that ($42,000).
A refined sugar company
Rogers Sugar (TSX: RSI), with a valuation of just $591 million at the time of writing this, is the largest refined sugar distribution company in Canada and one of the largest maple syrup companies in the world. The company dominates one niche market and has a decently sized product portfolio. As a household name in Canada, Rogers is quite safe for a small-cap stock.
This market presence and its payout history make it a decent dividend pick. The company has managed a steady payout of about $0.0900 per share every quarter, even in years when the payout ratio crossed into the dangerous territory — above 100%. At its current 6.4% yield, the company can help you generate a passive income of about $74 a month with $14,000 invested.
A telecom giant
BCE (TSX: BCE) is the largest telecom company in Canada by market capitalization and one of the largest by number of subscribers. It’s also among the blue-chip stocks in Canada coveted for their dividends. The company has been growing its payouts for several years, earning it the title of an Aristocrat, and thanks to a hefty discount, it’s currently offering a juicy yield of about 7.5% — incredibly attractive for an Aristocrat.
If you invest $14,000 in this telecom giant, you will earn about $87 a month. As for sustainability, the company’s dividend history is the strongest point in the company’s favour. It has grown its payouts by a decent margin since 2020, even though its payout ratio has remained above 100%.
A REIT
When it comes to dividends, almost all comprehensive lists of stocks would include real estate investment trusts (REITs). Canadian REITs are among the most generous dividend payers, and even though sustainability is a concern, some REITs offer the best of both worlds.
SmartCentres REIT (TSX: SRU.UN) is a good example of such REITs. It used to be an aristocrat, and even though it has fallen from that rank by not growing its payouts since 2020, it also hasn’t slashed its payouts.
The payout ratio is also relatively safe compared to other REITs. But the most attractive thing about the stock right now is its mouth-watering 8.2% yield. At a $14,000 investment, the REIT can help you generate a $95 monthly income.
The REIT has repositioned itself as a mixed-use leader, pivoting away from retail spaces, which adds to its long-term attraction.
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Foolish takeaway
If you invest $14,000 each in the three dividend stocks (for a total of $42,000), you can generate a monthly income of about $256. That comes to well over $50 a week ($64). You can reach your target of $50 a month with less capital, but it may be a good idea to overshoot, considering inflation and the fact that only one of the three stocks is an Aristocrat.
