Did you know a $10,000 investment today can earn you $136.8 per month in tax-free passive income, which comes to $1,642 a year? And this return window is short. Those who invest in a weak market prosper in a strong market. Follow three simple steps: open an account, invest, and forget.
Three reasons to invest in this passive-income stock and forget
Canada’s real estate market has been bolstered since 2010. Canadian property prices have more than doubled in the past few years. An economical way of investing in real estate is real estate investment trusts (REITs), and CT REIT (TSX:CRT.UN) has an attractive investment appeal.
- Firstly, it has only $2.77 billion in debt, with a weighted average maturity of six years (one of the longest in the industry). Its debt profile is much better than other REITs.
- Secondly, it has consistently reduced its distribution payout ratio from 88% in 2014 to 72.5% in the second quarter of 2023. The payout ratio reduced while distribution per share increased by over 3% annually.
- Lastly, it used the money saved from a lower payout ratio to fund development and intensification projects that help it earn higher rent, allowing it to grow cash flow and distributions.
CT REIT is more efficient than its peers because its biggest tenant is its parent Canadian Tire, contributing over 90% of rental income. The REIT accumulates some of the rent to buy stores owned by Canadian Tire and third parties and leases them to the retailer. It is like buying your parent’s house and leasing it to them. Your parents can show rent expenses, and you can show rental income. You can return this rental income to your parents as dividends.
The way Canadian Tire is reinvesting its rent to buy new properties under the CT REIT, you can also reinvest your distribution payouts tax-free and compound your returns. Let’s see how.
How to earn $136.8 per month in passive income
CT REIT stock trades at an average price of $16.5. However, high interest rates have pulled down the stock price of all REITs. CT REIT stock is oversold, creating an opportunity to buy this dividend stock for less than $13.5 a share and lock in a higher yield of 6.7%.
If you invest $10,000 in this stock while it trades at its low, you can get 741 shares. Do so with your Registered Retirement Savings Plan (RRSP), as it allows your investment to grow tax-free. The REIT’s distributions will be tax-free. You can reinvest the complete payout under the dividend-reinvestment plan (DRIP) offered by CT REIT and save on brokerage.
| Year | Annual Investment | CT REIT DRIP Shares | CT REIT Share count | CT REIT Dividend per share (3% CAGR) | Total dividend |
| 2024 | $10,000.00 | 741.0 | 741.0 | $0.90 | $666.90 |
| 2025 | $666.90 | 40.0 | 781.0 | $0.93 | $723.99 |
| 2026 | $723.99 | 44.0 | 825.0 | $0.95 | $787.72 |
| 2027 | $787.72 | 48.0 | 873.0 | $0.98 | $858.56 |
| 2028 | $858.56 | 52.0 | 925.0 | $1.01 | $936.99 |
| 2029 | $936.99 | 57.0 | 982.0 | $1.04 | $1,024.57 |
| 2030 | $1,024.57 | 62.0 | 1044.0 | $1.07 | $1,121.93 |
| 2031 | $1,121.93 | 68.0 | 1112.0 | $1.11 | $1,230.86 |
| 2032 | $1,230.86 | 74.0 | 1186.0 | $1.14 | $1,352.15 |
| 2033 | $1,352.15 | 82.0 | 1268.0 | $1.17 | $1,489.01 |
| 2034 | $1,489.01 | 90.0 | 1358.0 | $1.21 | $1,642.53 |
The 741 shares of CT REIT can earn you $667 in passive income by the end of 2024. However, it would be more than this as the $0.90 annual distribution is for July 2023 to June 2024. In the worst-case scenario, CT REIT might not grow distributions next year. Assuming you reinvest the payout annually to buy CT REIT shares at an average price of $16.5, your share count will grow to 1,358 and pay $1,642 in annual dividends.
Investing tip
While this was about CT REIT, which gives monthly payouts, other dividend stocks pay quarterly dividends and even grow them at a higher rate. Consider diversifying your passive-income portfolio between stocks of different sectors to ensure you have passive income coming in at times of need.
