The new year is almost here. No, really. I know that it feels like November just started, but by next week, November is almost going to be over. And that means it’s time to start preparing for the holidays and from there, the new year. This is why before November is out, it’s a great time to pick up some stocks for 2024.
While the TSX today is already on the path to recovery potentially, there is still a bit of volatility that could come in the new year, however. So, that means preparing with stocks that provide plenty of passive income. So, here’s how to prepare for 2024.
Consider all passive income
When it comes to creating passive income, make sure you’re not just looking at dividend income. That income may seem fixed, but it’s not. Companies can just come along and cut the dividend to fund other things, including losses from the past few years.
That’s why it’s also important to look at the company’s returns. If you want passive income through dividends, you want to make sure it’s secure. That means looking at the company’s share growth. If institutions and investors are interested in the stock and have been long term, that’s a clear sign that the company’s dividend is also strong.
However, there are also passive-income stocks that are trading down but should recover quickly in 2024. Cyclical stocks fall during a downturn but climb back quickly in a bull market. So, consider that when looking for passive income.
Where to look
If you’re looking for stocks that are perhaps more valuable now but set to soar in 2024, then look at discretionary stocks. These are companies that tend to be cyclical — ones that may drop during a downturn but pick right back up during a bull market.
So, with that in mind, there are a few that will likely climb back sooner than others. In fact, there are some that could climb back right in time for the holidays. With consumers having potentially more cash on hand and the market doing better, Canadians should reach for these discretionary stocks right around the holiday season. This could produce a very strong next quarter, resulting in a rise in share price.
Yet above them all, if you’re looking for both dividend income and passive income through returns, I would consider Magna International (TSX:MG). Magna stock recently had a boost, as the company increased its guidance for the next few years. It continues to expand with the growth of electric vehicle use. However, shares are still down about 17% from 52-week highs, providing a great deal.
Watch it grow
If you’re going to create a lot of passive income in the next year or so, now is an excellent time to consider Magna stock. It trades at just 15.38 times earnings, offering a 3.39% dividend yield. That’s far higher than its five-year average of 2.89%. Furthermore, it would take just 61% of its equity at this time to cover all its debts, making it strong financially as well.
So, let’s say you had $7,000 to invest, putting that into your Tax-Free Savings Account (TFSA) in the new year with the extra contribution room. Then we see shares return to 52-week highs. Here is what that could look like.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| MG – now | $76 | 92 | $2.55 | $234.60 | quarterly | $7,000 |
| MG – highs | $92 | 92 | $2.55 | $234.60 | quarterly | $8,464 |
In very little time, you could create passive income in both dividends and returns. You would achieve $234.60 in dividend income and $1,464 in returns. That’s a total of $1,698.60 in total passive income! So, don’t wait around. Get in on this deal while it lasts.
