Earning passive income by investing in TSX stocks can be a very good way to build wealth over time. There are several reasons why investing in stocks for income can be a lower-risk, higher-reward endeavour.
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Why stocks are ideal for earning passive income
Firstly, you don’t need a huge amount of capital to invest in stocks. You need enough cash to buy one share. Whereas other passive-income investments like private real estate or a franchise require significant amounts of upfront capital.
Secondly, stocks are liquid and can be traded easily. The cost to purchase and sell a stock is minimal. As a result, it gives an investor ample flexibility. Real estate and businesses are not liquid assets. The fees (legal, municipal, taxes, commissions) required to trade investment properties can be substantial.
Lastly, other supposed passive-income alternatives are more time-consuming than one might imagine. Owning an investment property requires considerable management and capital to operate. On the inverse, when you buy a stock, you also buy a management team that hopefully manages the business expertly for you.
Owning stocks for passive income can be a superior investment to other alternatives. However, it does come with a volatile market that investors must be prepared to stomach. If you think you can, here are two Canadian real estate stocks that pay attractive passive income monthly.
A quality apartment portfolio in the U.S.
Why buy a condo rental or an apartment building when you can invest in a best-in-class apartment owner like BSR REIT (TSX:HOM.UN)?
Its properties are in the U.S. sunbelt states. These states have been benefiting from very strong immigration and economic development. Its affordable rental rates should help it preserve occupancy and maintain rental rates in its market. Over the long term, it should benefit from the growth in its core regions.
This real estate investment trust (REIT) has a very smart management team, and its chairman is a major stock owner (i.e., executives are aligned with unitholders). BSR has a good balance sheet. It has largely locked in its interest rate expense exposure for the next several years. Likewise, it has been buying back quite a bit of stock in the past year.
With interest rates rising, BSR’s stock has taken a substantial hit. As a result, you can buy its stock while it is trading at a wide discount to its private market value. Likewise, BSR trades with a 4.56% distribution yield. It pays a $0.05833 distribution per unit every month.
A top industrial REIT for passive income
Granite REIT (TSX:GRT.UN) is another great stock to buy for monthly passive income. Granite has an institutional portfolio of logistics, distribution, and manufacturing properties across North America and Europe.
Most individual investors would never be able to afford these high-end assets. However, you get to own a stake in Granite’s high-quality portfolio.
Trends such as e-commerce and near-shoring continue to provide a strong baseline of industrial property demand. Granite’s properties should still earn attractive mid-single-digit cash flow per unit growth in 2024 (and likely beyond).
Granite has an industry-leading balance sheet. Likewise, it has an extremely discreet management team. As a result, its passive-income stream is very safe and likely to grow (it has raised its distribution for 13 consecutive years).
This passive income stock yields 4.5% today. Granite stock earns $0.275 per unit monthly. It’s a low-risk stock to steadily collect income for years ahead.
