Buy 1389 Shares in This Magnificent Dividend Stock for $135/Month in Passive Income

It is never too early to build a passive income portfolio. Your first-year paycheque or a side hustle can pay you $135/month for decades.

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The concept of passive income is fascinating. If you add the power of compounding, your money will keep working for you while you are binge-watching Harry Potter or vacationing in Hawaii. It is compounding that separates millionaires from the average household. The end outcome is only the iceberg you see above sea level. The process of reaching the sea level requires deep commitment and a lot of patience. And today, we will discuss that process to reach the level at which passive income looks like a cakewalk. 

A magnificent dividend stock for monthly passive income 

What is the best way to earn money without working? Most of you will say become a landlord of a shop as a commercial store earns higher rent. Real estate prices will only increase in the long term as immigrants flock into the country. 

CT REIT (TSX:CRT.UN) stock is one of the top retail REITs that gives monthly payouts and has also increased it annually by 3%. Not many REITs are consistent with growing distributions as their occupancy levels keep fluctuating. Old tenants leave, and new ones come. That vacancy period has a cost. Moreover, there are costs involved in the development and maintenance of the existing properties and the acquisition of new properties. 

CT REIT has an advantage because of its single largest tenant Canadian Tire. Think of it like you are renting out space to your parents and buying your parents’ property. You get a better deal and have the first offer. CT REIT has leased over 91% of its property to its parent Canadian Tire, and it also gets the first offer to buy stores of the retailer. Moreover, the REIT increases its rent by 1.5% every year. All these advantages help it grow distributions every year by 3%. The REIT is pays 73.4% of its adjusted funds from operations as distributions, giving it ample flexibility to sustain any surprises. 

How to compound your dividend

You can invest a lump sum amount when the stock is trading low and lock in a higher dividend yield, or invest a small amount every month and reduce your average cost per share. To compound the above returns, you can opt for a dividend reinvestment plan (DRIP) and save on brokerage fees. And if you invest through a registered savings account like a Registered Retirement Savings Account (RRSP), your investment can grow tax-free. 

Buy 1389 shares in this dividend stock for $135/month in passive income

CT REIT units are currently trading at a 13% discount of around $14.50 from a year ago as high interest rates have pulled down property prices. Like all REITs, even CT REIT reported a decrease in the fair market value of its properties, which decreased its 2023 net income by 29%. However, the trend will reverse when the Bank of Canada cuts interest rates. 

You can make the most of CT REIT by investing $20,000 in its DRIP and locking in a 6.22% yield. This amount can buy you 1,389 shares. And with 3% distribution growth, you can keep buying DRIP shares. When making a forecast, it is better to be conservative. Hence, I expect all DRIP shares to be purchased at the higher end of the REIT’s stock price range of $14 to $16.50. 

YearAnnual InvestmentCT REIT DRIP SharesCT REIT Share CountCT REIT Dividend per Share (3% CAGR)Total Dividend
2024$20,000.0013891389$0.90$1,250.10
2025$1,250.1075.81464.8$0.93$1,357.84
2026$1,357.8482.31547.1$0.95$1,477.15
2027$1,477.1589.51636.6$0.98$1,609.50
2028$1,609.5097.51734.1$1.01$1,756.60
2029$1,756.60106.51840.6$1.04$1,920.37
2030$1,920.37116.41957$1.07$2,103.06
2031$2,103.06127.52084.4$1.11$2,307.23
2032$2,307.23139.82224.3$1.14$2,535.87
2033$2,535.87153.72378$1.17$2,792.42
2034$2,792.42169.22547.2$1.21$3,080.89

The above table shows how a DRIP can compound your $20,000 and grow your holding to 2,547 shares in 11 years. These shares can give you $256 per month in passive income. 

If you do not compound, a $20,000 investment today can start earning $104/month from March 15 onwards. This passive income could surge to $135 by 2034 if CT REIT continues to increase its distribution by 3%. Compounding can increase your passive income by 88% or $121 per month. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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