This Passive-Income All-Star Just Increased its Dividend by 20%!

This passive-income stock just pushed its dividend even higher, providing 20% growth as well as an average of 25% in five years!

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Canadians continuing to seek out passive income may have come across Dream Unlimited (TSX:DRM) in the last few weeks. And it’s clear why. The passive-income all-star just increased its dividend by another 20% after earnings! Yet, while that’s likely great news for passive income seekers, there are other points to consider as well. So, let’s dive into whether Dream stock looks like a buy after this dividend increase.

What happened?

First off, let’s get into earnings. Dream stock reported its fourth quarter and annual 2023 results, showing recurring income that increased from higher fees from asset management and higher occupancies in its rental properties.

The company continued to hold a net loss but managed to bring it down from 2022 levels from growth in its asset management and fair value gains. That being said, its liquidity significantly increased compared to the same time last year.

Part of this came from the sale of its Arapahoe Basin ski resort, with the proceeds going towards debt repayment and potentially returning some to shareholders. Dream also announced a 20% increase in dividend. The stock now offers a $0.60 annual dividend, up from $0.50 before earnings.

Are dividends enough?

That’s the question as of now, given that Dream stock is making headway, but hasn’t rid itself of a net loss yet. And as a dividend provider, it has a solid history. The company has paid dividends in the past five years, and in that time has seen it rise from $0.20 annually to now $0.60. This provides a compound annual growth rate (CAGR) of 25%!

What’s more, the company sees growth in its asset management fees and income from its multi-family rental portfolio as reasons to be bullish on the stock. this suggests a more stable and predictable income stream.

The stock also boasts record-high pre-sales for land parcels, so there are certainly more future opportunities for development down the pipeline. And with more liquidity on hand, this is a solid financial cushion offering flexibility for even more growth.

What to watch

While all that future growth is possible, it’s not definite. Though I’m on board with the recurring income stability of asset management fees, there will need to be more growth on the horizon if I’m going to be a long-term investor.

What’s more, Dream stock doesn’t have a long history of dividend payments, starting them just in 2019. Rising interest rates continue to put pressure on the stock’s value, and lower development sales in Western Canada also reduced short-term revenue.

So, while the economic environment remains uncertain, overall, the stock is in a bit of a transitionary period. Yet, if you’re willing to wait it out, Dream stock could be a strong passive-income stock to consider. You could grab a dividend yield at 2.95% as of writing, and possibly get in on a recovery — especially with liquidity providing future strength.

As always, before investing, make sure Dream stock aligns with your long-term strategy. Look at analyst ratings and consider whether that dividend will be enough. Even though it’s a 20% increase, a 2.95% dividend won’t make up for a huge loss in short-term returns.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Dream Unlimited. The Motley Fool has a disclosure policy.

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