What can you do with a 6% yield? A 6% yield is like getting a $6 payout annually for an initial investment of $100. If you consider this calculation in terms of cash, it is like dividing $100 into 16 years of equal payouts. But $6 today won’t be able to buy you the same thing 10 years from now. Is it worth investing $100 now? Yes, as a 6% dividend stock works the other way.
Why invest in this 6% dividend stock?
CT REIT (TSX:CRT.UN) is a dividend stock currently offering a yield of over 6%. It pays this 6% yield in 12 equal monthly installments and increases the payout by more than 3% annually. Canada’s average inflation is in the range of 2-3%. If you are getting $6 today, you will get $6.18 next year if the real estate investment trust (REIT) continues to grow its dividend by 3% every July. It will ensure you have the same purchasing power 10 years from now. And your invested amount of $100 grows or falls as per the stock price.
Warren Buffett said, “Today, people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”
Why reinvest dividends?
This is how your investment works if you take the payouts. CT REIT also allows you to compound your returns with a dividend-reinvestment plan (DRIP). In this, the $6 payout is used to buy more units of CT REIT, which also gives a 6% yield. Your 6% yield with a 3% average annual growth can double your money in 10 years. Here’s how.
| Year | Invested Amount | Number of CT REIT Shares @ $16.5 | Total CT REIT units | CT REIT Dividend per share (3% CAGR) | Annual Payout |
| 2024 | $3,600 | 218.00 | $0.898 | $195.808 | |
| 2025 | $3,796 | 230.05 | 448.05 | $0.925 | $414.511 |
| 2026 | $4,015 | 243.30 | 691.35 | $0.953 | $658.790 |
| 2027 | $4,259 | 258.11 | 949.46 | $0.981 | $931.884 |
| 2028 | $4,532 | 274.66 | 1224.12 | $1.011 | $1,237.503 |
| 2029 | $4,838 | 293.18 | 1517.30 | $1.041 | $1,579.907 |
| 2030 | $5,180 | 313.93 | 1831.24 | $1.072 | $1,963.997 |
| 2031 | $5,564 | 337.21 | 2168.45 | $1.105 | $2,395.426 |
| 2032 | $5,995 | 363.36 | 2531.81 | $1.138 | $2,880.723 |
| 2033 | $6,481 | 392.77 | 2924.58 | $1.172 | $3,427.452 |
| 2034 | $3,427 | 207.72 | 3132.30 | $1.207 | $3,781.021 |
If you invest $300/month, your annual investment is $3,600. In 10 years, you invest $36,000 in CT REIT. But if you opt for the DRIP, the payout will buy more CT REIT units. I have taken CT REIT’s higher share price of $16.5 to keep a conservative outlook.
Your $3,600 investment can buy 218 units and earn you $196 in distributions in 2024.
You invest $3,600 in 2025, and DRIP invests $196, bringing your total investment to $3,796, which buys 230 shares at $16.5. More shares mean more dividends, plus an increasing dividend per unit. Your total units are now 448.24 (218+230), and you get a $414.5 payout.
At the end of 2034, your dividend amount grows to $3,781, earning $300/month. Your $36,000 investment may give $3,781 in passive income, which comes to an annual return of 10.5%.
Is now the right time to buy this stock?
In the above table, I took an average price of $16.5. However, CT REIT is trading at a 19% discount of $13.4. Instead of investing $300 per month, if you invest $3,600 now, you can buy 268 units of CT REIT, 50 units more than the 218 units I anticipated in the table. These extra 50 units mean $45 in distribution income. If I replace 218 shares with 268 in the above table, your 2034 dividend income will increase by $110 to $3,891.5.
The timing is right to buy this stock at the dip and get more units and a higher yield. I am bullish on CT REIT, as it enjoys high occupancy and stable cash flow.
