With interest rates sitting at such an elevated level and many dividend stocks trading off their highs as a result, now is the perfect time for investors to add high-quality passive income generators to their portfolios while they can lock in a higher yield.
Rising interest rates naturally cause stocks with dividends to sell off which, in turn, leads to higher dividend yields. This is what we’re seeing today.
However, with inflation now quickly coming under control and the economy looking more and more likely that it could enter a recession next year – causing policymakers to begin to lower interest rates – now seems like the perfect time for investors to look at boosting their passive income and adding a high-quality dividend stock to their portfolio.
And while there are plenty of high-quality stocks in Canada to look at today, almost all of which trade at some sort of discount, one of the very best stocks to consider is Morguard North American Residential REIT (TSX:MRG.UN).
Why is Morguard one of the best dividend stocks to buy now for passive income?
While there are plenty of high-quality dividend stocks that can help boost your passive income immediately, Morguard is one of the top choices, in my opinion, for several reasons.
First off, as uncertainty remains high and we head into 2024, where a recession is a strong possibility, the fact that Morguard operates in a defensive industry is significant. Residential real estate is one of the most defensive industries there is because no matter what the state of the economy or how aggregate incomes in the economy may be impacted, everyone always needs somewhere to live.
Plus, in addition to operating in a defensive industry, Morguard’s portfolio of properties is also extremely well diversified. Not only does it own properties in Canada, but Morguard also owns assets in nine different states south of the border.
Therefore, it’s no surprise that such a high-quality and defensive business has a dividend that appears highly sustainable. Right now, Morguard distributes just $0.74 per unit to investors.
Meanwhile, it’s expected to earn funds from operations (FFO) per unit of $1.60 this year, more than double what it intends to pay out, showing the passive income that the dividend stock provides looks highly resilient.
Finally, in addition to Morguard’s resiliency and attractive distribution, another reason it’s such an excellent investment is that it has a tonne of long-term growth potential. With assets diversified in several different states and regions, Morguard is perfectly positioned to capitalize on the economy if some regions are experiencing more rent growth than others.
We saw this in 2022, specifically in the southern states, which ended up helping Morguard increase its FFO by 27.8% last year.
How cheap is Morguard Residential REIT trading today?
While many dividend stocks like Morguard have been falling in value while rates have been rising, now is the perfect time to take advantage and look to boost your passive income.
Not only is Morguard trading more than 20% off its 52-week high, but it is also trading at a forward price-to-FFO ratio of just 8.9 times. That’s well below its three- and five-year averages of 12.4 and 13.1 times, respectively.
Furthermore, its forward dividend yield of 5% today is also higher than its three- and five-year averages of 4.3% and 4.2%, respectively.
So while this high-quality dividend stock continues to trade at an attractive valuation, it’s certainly one of the top stocks to buy now and immediately start to earn passive income on.
