You can invest in different stocks for different goals. Suppose you earn $80,000 a year and follow a 50:25:25 budget: 50% for daily expenses, 25% for emergencies and discretionary spending, and 25% for long-term savings. It gives you $20,000 for investing. You can either invest small amounts of $1,000 per month in multiple objectives or invest that entire amount for a particular goal, like paying your monthly utility bills.
Is it a ripe time to invest $20,000 for monthly passive income?
The current stock market mood is bearish as delays in interest rate cuts have again pulled the plug off the recovery rally. Real estate prices remain weak, pulling down unit prices of even resilient REITs as the fair market value of their property portfolio fell. CT REIT (TSX:CRT.UN) stock fell 19% since the interest rate hike began in April 2022, despite having strong fundamentals.
The REIT’s funds from operations increased while its leverage ratio fell to 6.8. The leverage ratio means if CT REIT paid off its entire debt of $2.8 billion using operating profits, it would take 6.8 years. It might look high, but it is normal for REITs as their assets are properties. They generally pay off debt by selling properties. In CT REIT’s case, 99.7% of its debt is interest-only unsecured debt, which it keeps extending by issuing new debentures.
Its weighted average interest rate on debt is 3.90%, which is reasonable given the Bank of Canada’s 5% interest rate. The next significant debt maturity will come in 2025. By then, interest rates will fall, keeping the REIT’s interest expense in control. While the balance sheet is strong, its rental cash flow is also growing smoothly.
Its four-pronged strategy of rent escalations, development of new stores, intensification of existing ones, and securing third-party leases have helped it grow distribution at a 10-year compounded annual growth rate (CAGR) of 4.1%. I am bullish on its distributions as >91% of its properties are leased by Canadian Tire. Moreover, the REIT has the first preference to buy Canadian Tire properties. It could continue growing distribution at 3% CAGR for the next 10 years, given the resilience of Canadian Tire.
How to turn $20,000 into $256/month to help with monthly expenses
Investing $20,000 in CT REIT today can help you earn $256/month. Let’s see how.
| Year | Annual Investment | CT REIT DRIP Shares | CT REIT Share count | CT REIT Dividend per share (3% CAGR) | Total dividend |
| 2024 | $20,000.00 | 1,388.9 | 1,388.9 | $0.90 | $1,250.00 |
| 2025 | $1,250.00 | 75.8 | 1,464.6 | $0.93 | $1,357.73 |
| 2026 | $1,357.73 | 82.3 | 1,546.9 | $0.95 | $1,477.03 |
| 2027 | $1,477.03 | 89.5 | 1,636.4 | $0.98 | $1,609.37 |
| 2028 | $1,609.37 | 97.5 | 1,734.0 | $1.01 | $1,756.46 |
| 2029 | $1,756.46 | 106.5 | 1,840.4 | $1.04 | $1,920.22 |
| 2030 | $1,920.22 | 116.4 | 1,956.8 | $1.07 | $2,102.89 |
| 2031 | $2,102.89 | 127.4 | 2,084.3 | $1.11 | $2,307.04 |
| 2032 | $2,307.04 | 139.8 | 2,224.1 | $1.14 | $2,535.66 |
| 2033 | $2,535.66 | 153.7 | 2,377.8 | $1.17 | $2,792.20 |
| 2034 | $2,792.20 | 169.2 | 2,547.0 | $1.21 | $3,080.64 |
With $20,000, you can buy 1,389 shares of CT REIT at $14.4/share and get $1,250 in 2024 distributions. The REIT offers a dividend-reinvestment option wherein you save on brokerage as the REIT itself gives you more units worth your distribution amount. Assuming an average cost per unit of $16.5, you will have 75.8 DRIP shares next year, which will also pay distributions. Your passive income grows as your unit count and distribution per share increase. At the end of 2034, your $20,000 investment compounds to 2,547 CT REIT units that pay $256.7 in monthly distributions, or $3,080 a year.
These calculations can change, as the REIT can accelerate its distributions, pause them, or cut them if the business and economic situation demands it. As a shareholder, you are exposed to business risk and growth. You can revise your calculations based on market developments.
The overall return on investment
If you decide to stop DRIP and start collecting the payout, the $256 monthly passive income can help you pay a few bills, reducing the burden of your active income. And this passive income will grow with inflation. You have a dual advantage of lower expenses and more money to invest. Moreover, you still own $42,000 worth of CT REIT units.
