Build a Powerful Passive Income Portfolio With Just $20,000

Following the stock market correction, people nearing retirement are worried about their portfolios. Your stock portfolio might have seen a steep decline from last year. It is common to feel worried about your retirement pool shrinking. However, this is not a time to panic and sell your investments, especially the ones targeted at generating passive income. Remember, the market correction is temporary.

Hasty decisions can permanently scar your portfolio.

Instead of reacting, take a deep breath and use the time to revisit your portfolio. See if the stocks you have invested in still have their secular growth intact.

How to determine which stocks to sell

Oil stocks have been hit the hardest and have finally corrected from their cyclical peaks. I have been bearish on Suncor Energy (TSX: SU) and other oil-producing stocks for almost a year as they were trading near their 2010 peaks. If you still own this stock, consider selling as it could fall further. However, if you bought the stock during the pandemic low and have invested in it for dividends, you could continue holding it.

How to determine which stocks to buy for passive income

You could invest in stocks that have a history of withstanding crises or an economic moat that makes them too important to fail.

Telus Corporation (TSX: T) is important for the Canadian economy because of its significant fibre infrastructure. Moreover, it poached many new customers in a price war. The company is now widening its customer base by offering its bundled services on competitors’ networks since the telecom regulator is not willing to revoke the network sharing rule.

The telco’s balance sheet is highly leveraged as it has been building the 5G infrastructure, which costs four times more than 4G because of the dense network. And building a 5G network in the vast lands of Canada is expensive. However, the company is now reducing its debt and restructuring the business to monetize the 5G network.

This could help Telus give dividends and even increase them for another decade. Its revenue and earnings won’t be directly impacted by Trump tariffs. The stock is trading near its 10-year low, creating an opportunity to lock in an 8% dividend yield.

A $10,000 investment in Telus can give you a passive income of…

A $10,000 investment in Telus can buy you 496 shares for $20.16 per share. If you are retiring this year, you could get $798.60 in annual dividends. Since the first two quarterly dividends have already been distributed, you can still collect dividends of $399. However, if Telus grows its dividend semi-annually by 3.5% as it has been doing for several years, the next two payouts could pay $413 in dividends on 496 shares.          

If you are retiring five years later, it is a good time to invest in the Telus dividend reinvestment plan. Assuming the management grows the dividends by 6%, your passive income could grow to $1,433.

Telus’s dividend growth will continue as its payout ratio is 81%. Although the ratio is above its target range of 60–75%, it will improve the free cash flow as the company focuses on reducing debt and capital expenditures.

CT REIT

Another $10,000 can be invested in CT REIT (TSX: CRT.UN). It is among the very few stocks that pay monthly dividends, grow them annually by 3%, and offer a yield of over 6%. The next dividend growth will come in July.

All of it is sustainable, as the REIT’s payout ratio is 75%. The REIT manages to give such rich payouts as it has the advantage of getting the first right on developing and leasing Canadian Tire stores. The REIT doesn’t have to spend much on marketing to fill vacant stores or worry about retaining tenants. The cost savings from all this materialize into higher payouts.