Can careful planning give you a monthly dividend income without fail in every economy? If you are in Canada, it can. Canada is home to some of the best dividend stocks with robust business models that have an integrated dividend. They have established dividend policies that give priority to dividends over capital appreciation.
Source: Getty Images
Two TFSA stocks to build a $1,000/month dividend income
Before investing in stocks, consider looking at the company’s business model and its ability to sustain cash flows. If the company can sustain its cash flows and sustainably grow them, that can be your dividend machine. The right place to look for such stocks is companies that enjoy inelastic demand, such as telecom, utilities, real estate, groceries, and banks.
CT REIT
CT REIT (TSX: CRT.UN) is the real estate arm of Canadian Tire. The retailer’s business expansion revolves around opening new stores, closing non-performing stores, and enhancing existing stores for a better consumer experience. That makes real estate a significant part of the retail chain and rent/leases a major chunk of its operating expenses. Having your parent as your biggest client has its benefits. No competition, assured occupancy, and rate negotiations are not a hassle. Moreover, you are the first choice whenever a new capital budget is approved.
These benefits help CT REIT enjoy stable and sustainable rental income, which it passes to unitholders in monthly distributions. Distributions are an integrated part of the business structure of a trust. Thus, you can be assured of receiving dividends every month in every economy.
Freehold Royalties
Many dividend aristocrats offer quarterly payouts. But if you want to stick to monthly payouts, Freehold Royalties (TSX: FRU) is another stock to consider in the current environment, but not for the long term. Freehold Royalties earns royalty on the volume of oil produced on the land it leases to oil companies and the price of oil. Its dividends might fluctuate depending on oil volumes. However, the company has shown stability as it has acquired several high-reserve lands in the United States that fetch it a premium amount because of its close proximity to the Gulf Coast.
Under the US President Donald Trump, oil stocks stand to flourish as his government looks to make the United States an exporter of oil and gas. Freehold Properties can sustain its current dividends even at an oil price of US$60/barrel, considering the volumes produced.
How to build a $1,000/month dividend income from the above stocks
If you want to start earning $1,000/month in dividend income from the above stocks, you will have to buy 12,000 shares of each, which will require an investment of around $358,000. That may seem a lot, but if divided over a period of 15 years, with the option of reinvesting the dividend, your invested amount will reduce as the power of compounding will help grow your money.
Instead of investing in these stocks alone, consider building some wealth from growth stocks and parking your profits in dividend income.
Topicus.com is a growth stock and at a sweet spot to buy at the dip. The stock has dipped 21.5% since September as investors reacted to the sudden resignation of Constellation Software’s founder. Moreover, the second half of the year is relatively weak for Topicus.com, as most of its cash flow is skewed towards the first half.
You can invest $10,000 in Topicus.com now and get 71 shares. Then, wait for a 50–70% upside in the share price, withdraw the profits annually, and invest in the above two dividend stocks. For instance, the stock is trading close to $140. When the share price crosses $210, you can sell half of the shares, which will fetch you around $5,000. You can use the profits to buy dividend stocks, thereby converting capital gains into monthly dividends.
Simultaneously, you can keep buying 100 to 200 dividend shares with your TFSA contribution. This can help you accumulate sizeable shares over the long term without incurring tax liabilities.
