Who doesn’t dream of generating passive income? The allure of earning money with minimal ongoing effort is strong, and the stock market offers a tantalizing pathway to achieve this goal. The secret lies in the power of compounding—where your income can generate even more income.
For instance, if you’re already making $500 a month in passive income, reinvesting that income can significantly enhance your earnings over time. Smart stock picks can accelerate this growth, but it’s crucial to be aware of the risks involved in stock investing compared to more stable fixed-income investments.
The Tax-Free Savings Account (TFSA) stands out as an exceptional tool for Canadians looking to maximize their passive income while keeping their earnings tax-free. By investing in high-yield stocks through your TFSA, you can grow your wealth without the drag of taxes. To generate $500 per month—or $6,000 annually—based on different yield scenarios, here’s a breakdown of the required investment:
- 4% yield: $150,000
- 5% yield: $120,000
- 6% yield: $100,000
With this in mind, here are some Canadian stocks that offer attractive yields between 4% and 6%, which could help you reach your passive-income goals.
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Granite REIT: A solid investment in industrial real estate
Granite REIT (TSX:GRT.UN) stands out with its robust portfolio of industrial properties. The Canadian real estate investment trust (REIT) manages 138 income-producing properties and five development sites, positioning it for future growth.
The surge in e-commerce and supply chain needs has benefited Granite REIT, which counts Magna International and Amazon among its top tenants, contributing approximately 27% and 4% to its revenue, respectively.
Since 2014, Granite REIT has demonstrated solid growth, with its revenue per share climbing at a compound annual growth rate (CAGR) of over 7%. This performance has fueled a CAGR of 4.3% in its funds from operations per unit and cash distributions for investors.
Priced at $77.06 per unit at writing, the stock trades at a discount of around 13%, with an estimated 12-month upside potential of about 15%. This translates to a current yield of nearly 4.3%. Given its resilient business model, Granite REIT could deliver a solid annual return of about 13% over the next few years.
Exchange Income offers resilience and high yield in a cyclical sector
Exchange Income (TSX:EIF) is another compelling choice for investors seeking high income. The company focuses on acquiring businesses in the aerospace, aviation services, and manufacturing sectors, generating robust cash flow from its 19 subsidiaries that operate in niche markets.
The company has shown resilience through economic ups and downs, with a CAGR of 7.8% in revenue per share since 2014. Its commitment to paying monthly dividends has been unwavering since 2004, with a 10-year dividend-growth rate of 4.2% per year.
Trading at $48.69 per share at writing, it offers a generous dividend yield of 5.4%. Analysts believe the stock is undervalued by over 23%, with a 12-month upside potential exceeding 30%. This makes the monthly income stock a promising investment with nice potential for both income and capital gains.
CT REIT offers reliable income
CT REIT (TSX:CRT.UN) provides a stable income stream primarily from rental payments by Canadian Tire, one of Canada’s largest and most established retail chains. The REIT benefits from long-term leases with Canadian Tire, which often include rent escalations, ensuring stable and predictable cash flows.
As a Canadian Dividend Aristocrat, CT REIT has a history of increasing its cash distribution for approximately 11 consecutive years, with a five-year cash distribution-growth rate of 3.9%.
Priced at $15.45 per unit, the REIT offers a high cash distribution yield of close to 6%, with an estimated upside potential of up to 13% over the next year. This makes CT REIT a strong contender for those seeking both reliable income and growth.
The Foolish investor takeaway
By strategically investing in these high-yield stocks through your TFSA, you can work towards generating a steady passive income stream of $500 per month. As always, ensure you conduct thorough research and consider your financial goals before diving into any investment.
