How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $20,000

Income-seeking Canadian investors can consider holding shares of REIT such as Dream Industrial to create a passive-income stream.

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Creating passive-income streams is a proven strategy to build long-term wealth. You need to put your capital to work, allowing you to generate consistent cash flows across market cycles. Investors looking to craft a consistent passive-income strategy may initially find it overwhelming, as they first need to identify the appropriate asset class that can help them generate passive income.

While the real estate sector has created multi-millionaires historically, it requires vast amounts of capital. For instance, the average home price in Canada is well over $600,000, so you need to fund the purchase with significant debt.

In recent months, interest rate hikes have made buying a house for potential homeowners quite expensive. In addition to regular interest payments, landlords have to account for maintenance expenditures as well as periods of vacancies, lowering overall returns in the process.  

One low-cost way to generate passive income is by investing in high-dividend stocks. But you still need to analyze the fundamentals of companies to see if they can maintain and even increase dividend payments over time. Additionally, a majority of dividend stocks pay shareholders a quarterly dividend, which may not be ideal for the income-seeking investor who would want a monthly payout.

However, you can still gain exposure to the real estate sector at a very low cost and create the ultimate monthly passive-income portfolio with just $20,000 in savings.

A melting pot of real estate assets

Real estate investment trusts, or REITs, provide investors with exposure to the real estate sector. As REITs are listed on the TSX, they are extremely liquid and can be traded at the click of a few buttons.

Generally, REITs hold diversified portfolios of real estate assets, which are rented out to tenants. A significant portion of the rental income generated by REITs is distributed to shareholders via dividends.

One such REIT is Dream Industrial (TSX:DIR.UN), which offers shareholders a tasty dividend yield of 5.6%. Dream Industrial is fairly recession-proof and ended the third quarter (Q3) with a portfolio of 322 industrial assets totalling 70.6 million square feet of gross leasable area in key markets across Canada, Europe, and the U.S.

Despite an uncertain macro environment, Dream Industrial reported funds from operations, or FFO, of $0.25 per share in Q3, an increase of 10.4% year over year. Its comparative properties net operating income also rose 10.4% to $84.6 million in the September quarter.

Given its monthly payout of $0.058 per share, Dream Industrial has a payout ratio of less than 70%, providing it with enough flexibility to acquire additional properties and strengthen its balance sheet.

Analysts remain bullish and expect shares of Dream Industrial REIT to surge by more than 28% in the next 12 months.

The Foolish takeaway

Dream Industrial is just an example of a quality Canadian REIT. You need to identify similar companies that pay you a sustainable and attractive dividend. Investors can further diversify their REIT portfolio by holding exchange-traded funds, such as iShares S&P/TSX Capped REIT Index ETF, which has a yield of 5.6%.

Moreover, the ETF holds a basket of REITs, including Dream Industrial REIT, which accounts for 7.3% of its total holdings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Dream Industrial Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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