How Putting $50,000 Into This High-Yield Dividend Stock Could Generate $3,550 in Annual Passive Income

Who doesn’t like certainty? Invest X amount and get Y amount in so many years. This certainty is what a Guaranteed Investment Certificate (GIC) provides. The best GIC rates available are 3.6% interest for one year and 4.1% for five years. The problem with stocks is that there is no certainty. While you may invest $50,000, you can only make an estimate and not be assured of passive income. However, for a little risk, the premium some high-yield dividend stocks offer makes them worth considering.

A high-yield dividend stock that could generate $3,550 in annual passive income

Slate Grocery REIT (TSX: SGR.UN) offers a 7% annual dividend yield. Its source of dividends is rent from grocers in the United States. The REIT’s two largest tenants are Walmart and Kroger, accounting for 18.4% of rental income. The slow development of new retail properties keeps supply tight, allowing Slate to grow rent.

However, one risk, or rather advantage, with Slate Grocery is foreign exchange. It pays dividends in US dollars, and Canadians can receive dividends in Canadian dollars. Thus, the REIT converts currencies on its end and transfers Canadian dollars.

Slate Grocery REIT is trading at $17.34 per unit. If you invest $50,000 today, you can buy 2,883 units, which could pay $3,546 in annual dividends. This amount could fluctuate by 1%, but you can make a rough estimate of $3,500 in passive income.

The annual passive income is almost double the interest that a GIC offers.

Keeping passive income tax-efficient

If you are looking for a high-yield stock to substitute for your retirement pension, consider investing in Slate Grocery REIT through the Tax-Free Savings Account (TFSA). TFSA withdrawals are tax-free, and they do not affect your Old Age Security (OAS) payout. The Canada Pension Plan, OAS, and Registered Retirement Savings Plan (RRSP) withdrawals are taxable.

A tax-free annual passive income of $3,500 can help you with that extra cash you need to manage volatility. This amount will be paid in monthly installments of $295.50.  

Building a robust dividend portfolio for annual passive income

Slate Grocery REIT is a good dividend stock for immediate payouts. But it has its drawbacks. The REIT has not grown its dividend amount for a long time. That is the price for safer yields. Instead of putting all your money in one stock, consider diversifying your investment so that a slowdown in one place can be offset by growth in another place.

Consider diversifying across sectors, market caps, contrarian assets, and dividend policies.

Real estate is an alternative investment and can be coupled with bank stocks, which grow dividends as the economy grows.

Royal Bank of Canada

Royal Bank of Canada (TSX:RBC) can provide diversification by sector and market cap. The bank is strategically important for the Canadian economy, given the sheer number of companies and households it serves. The bank has had administrative and governance issues, but that is the risk of having large operations and thousands of employees. However, with every issue, the bank’s system only strengthens.

The bank earns from the difference in the interest earned from loans and mortgages, and paid to depositors. While the yield is only 2.3%, the bank grows its dividend by an average annual rate of 8%. Also, your invested amount will grow with the share price. RBC’s share price has surged 29% year to date.

Freehold Royalties

If you are willing to take a risk, Freehold Royalties (TSX: FRU) also offers a high yield of 6.6%. The company buys land and gives it to oil companies to extract oil and earns a certain percentage as royalty on the value of the output. While Freehold carries no risk of developing the land and closing the oil well, it is exposed to fluctuations in oil prices. The royalty amount depends on the dollar value of the output.

Freehold claims that it can sustain its current $1.08 dividend per share at WTI of US$50/barrel.