Canadians continue to seek out the best ways to make cash, and lots of it, through investing. Yet, a lot of this comes down to investing in dividend stocks. There’s nothing wrong with that! However, there is an issue if you’re only looking at the dividend yield.
While a dividend yield that’s high can certainly be a benefit, it’s not everything. After all, if a dividend yield is too high for too long, it could be a sign that the dividend is going to get slashed — especially if the payout ratio is too high.
That’s why we’re going to look at two methods of passive-income production: first, that dividend yield and then returns. Put them together, and you could create $1,000 in passive income within the next year, if not sooner.
Finding the right stock
Now, if you’re going to find the right stock for this, you’re going to want stability — companies that have promising futures and strong pasts and that don’t look likely to cut dividends any time soon. That’s why, right now, one of the best options I like to consider is industrial real estate investment trusts (REITs).
These properties are solid for a number of reasons. First off, industrial properties are surging in need. We are now in a world where we demand practically one-day delivery services. Because of this, we need warehouses and assembly lines all over the place, across the country and beyond.
But what’s great is these industrial properties don’t need many tenants to exist. They usually just need one or two. And these tenants sign on to long-term contracts that won’t disappear overnight. That provides investors with stable income as well as a growth opportunity right now for passive income.
Nexus REIT
That’s why a great deal to consider these days is Nexus Industrial REIT (TSX: NXR.UN). First, let’s look at the dividend. Nexus REIT offers dividend income each and every month for passive-income seekers. That dividend currently has a yield of 8.53% as of writing. That comes out to $0.64 per share on an annual basis.
But how safe is that dividend? That’s why we also want to look at the company’s fundamentals. In the case of Nexus REIT, it does look like the company has very few worries — especially as it continues to grow through new properties and acquisitions.
Shares currently trade at 4.33 times earnings, 3.36 times sales, and 0.51 times book value. Further, its enterprise value (EV) is just 9.18 over earnings before interest, taxes, depreciation, and amortization (EBITDA), making it quite valuable — especially with shares down 26% in the last year, though they’re up 14% in the last month. And with a payout ratio of 36.54%, the company could actually increase the dividend before cutting it. However, it will likely use cash to pay down debts first.
Creating passive income
Now, let’s say we’re looking at Nexus REIT to make us $1,000 in passive income every month. To do that, it will take a reasonably large investment. However, taking returns into account, it won’t be as much as trying to create a passive income of $1,000 each month in dividends.
So, let’s say you need to make $12,000 in passive income, with a goal of achieving that in the next year. This would mean your dividend income and returns need to add up to $12,000 in that time. Here’s what that could look like should the company reach 52-week highs.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| NXR.UN – now | $7.50 | 3,067 | $0.64 | $1,962.88 | monthly | $23,000 |
| NXR.UN – highs | $11.25 | 3,067 | $0.64 | $1,962.88 | monthly | $34,503.75 |
After investing $23,000, you could create returns of $11,503.75 in a year to reach 52-week highs. On top of that, you would achieve $1,962.88 in dividend income. Together, that’s actually $13,466.63 annually in passive income, providing you with a nice buffer to create $1,000 in passive income each and every month within the next year.
