3 Dividend Stocks I’d Buy for Monthly Passive Income

Wouldn’t it be nice to earn tax-free passive monthly income in your Tax-Free Savings Account? These are promising candidates.

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Assets that provide monthly passive income are invaluable. Here are a few dividend stocks I’d consider buying for this type of income.

Slate Grocery REIT

Slate Grocery REIT (TSX:SGR.UN) invests 100% in U.S. real estate properties that are anchored by grocery stores. It believes that even with competition from e-commerce, Americans will still continue to shop at necessity-based shopping centres – the kind in the REIT’s portfolio – for their everyday needs.

Besides, even e-commerce requires the facilitation of brick-and-mortar stores for pick-up and delivery of goods to consumers. This implies that Slate Grocery is a defensive real estate investment trust (REIT) with resilient income streams.

Its portfolio is comprised of about 117 properties across 15.3 million square feet in 24 states. Kroger and Walmart lead as its top two tenants, making up 9.6% and 9%, respectively, of its gross leasable area.

Steady retail sales growth, strong tenant demand, and low new supply in grocery-anchored centres could support solid rent growth. The REIT’s current in-place rent is about $12.37 per square feet.

At the recent price of $12.19 per unit, Slate Grocery REIT is reasonably priced and offers a high cash distribution yield of 9.5%. If you want a bigger margin of safety, wait for a market correction.

RioCan REIT

Here’s a Canadian REIT that looks interesting. A cash distribution cut in 2021, higher interest rates, and perhaps bad vibes investors are getting from the retail real estate sector, which RioCan REIT (TSX:REI.UN) is primarily in, may be what’s putting the income stock at a discount.

I believe RioCan REIT pays a safe, monthly passive income. First, the retail REIT has a high committed occupancy of 97.5%. Second, its payout ratio is sustainable at about 61% of its funds from operations. Third, it has relatively low debt levels, gaining an investment-grade S&P credit rating of BBB.

At the recent price of $18.60 per unit, it trades at a discount of about 20% from its long-term normal valuation. It also provides a compelling cash distribution yield of 5.8%. RioCan REIT would be a valuable asset to hold in a Tax-Free Savings Account (TFSA) for tax-free income while waiting for price appreciation. Growth could come from the execution of its development pipeline, which includes projects on its existing properties.

Exchange Income

As a company in the industrials sector, historically, the stock of Exchange Income (TSX:EIF) has been impacted by market corrections, which are healthy for the market and investors. Market corrections potentially provide better entry points for investors. The company’s actual earnings have been decently defensive through economic cycles.

At least the dividend stock has a long track record of paying safe dividends. Since starting a dividend in 2004, it has never cut it.

Exchange Income makes acquisitions in aviation services and aerospace, and manufacturing. It has about 18 subsidiaries that deliver essential products and services to niche markets. From these subsidiaries, it earns cash flows and pays out a reliable monthly dividend.

At $45.84 per share at writing, Exchange Income stock offers a dividend yield of close to 5.8%. At this price, analysts also estimate it trades at a meaningful discount of 27% from its intrinsic value. Valuation expansion could drive upside potential of 37% as a result.

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 Kay Ng has positions in Exchange Income and RioCan Real Estate Investment Trust. The Motley Fool recommends Kroger, Slate Grocery REIT, and Walmart. The Motley Fool has a disclosure policy.

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