Fifty dollars a month isn’t financial freedom. It is, however, a phone bill, a few subscriptions, or one less expense your paycheque has to handle.
That’s why I like starting smaller with passive income. You don’t need a portfolio capable of paying every bill tomorrow. Build enough income to cover one, reinvest the rest, and let time make the next bill easier. With $10,000, two Canadian stocks could currently produce just over $50 every month.
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Monthly matters
Payment frequency doesn’t increase an investment’s return. A 6% annual yield is still 6% whether it arrives monthly or quarterly. Monthly payments are useful, though. Investors who need income receive cash on roughly the same schedule as their bills. Investors who don’t need it yet can reinvest those distributions into more shares.
That’s why monthly dividend stocks can become useful building blocks for a longer-term passive-income portfolio. Real estate investment trusts (REITs) are particularly good hunting grounds, and there’s two that look interesting right now.
SRU.UN
SmartCentres REIT (TSX: SRU.UN) owns 201 properties across Canada, with much of its portfolio built around value-oriented retail. That tends to mean the sorts of places Canadians keep visiting even when budgets get tighter.
Its committed occupancy reached 98.1% during the second quarter, while rent growth on renewed leases excluding anchors hit 12%. SmartCentres isn’t standing still, either. New self-storage properties are opening, and an expansion of Toronto Premium Outlets is expected to begin construction in the fourth quarter. At $26.90, its $1.85 annualized distribution produces a yield near 6.9%.
CHP.UN
Choice Properties REIT (TSX: CHP.UN) approaches real estate from a slightly different angle. Its portfolio includes grocery-anchored retail, industrial properties, and residential assets. That grocery exposure gives it a particularly sturdy tenant base. People may postpone buying a sofa, but dinner remains a recurring event.
Second-quarter occupancy was 97.7%, while same-asset net operating income rose 2.8%. Choice also renewed 50 Loblaw leases covering 3.6 million square feet after quarter-end at an average rent increase of 8.8%.
Growth could accelerate further. Choice is working toward acquiring approximately $5 billion of First Capital REIT properties as part of the broader $9.4 billion transaction announced earlier this year, subject to remaining approvals and closing conditions. At $14.96, its $0.78 annualized distribution yields about 5.2%.
What $10,000 buys
Split $10,000 roughly evenly between the two, and the income starts looking tangible.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| SRU.UN | $26.90 | 185 | $1.85 | $342.25 | Monthly | $4,976.50 |
| CHP.UN | $14.96 | 334 | $0.78 | $260.52 | Monthly | $4,996.64 |
| TOTAL | $602.77 | $9,973.14 |
That works out to roughly $50.23 per month. Hold the investments inside a Tax-Free Savings Account (TFSA) with sufficient contribution room and those distributions can generally grow and be withdrawn tax-free.
Considerations
Both stocks are REITs, so this isn’t a perfectly diversified portfolio. Higher borrowing costs, property valuations, development expenses, and weaker tenants can all hurt results.
Choice also faces execution and added leverage risk around the First Capital transaction. SmartCentres reported flat funds from operations per unit during the latest quarter as higher interest and administrative costs offset stronger rental income. Furthermore, neither distribution is guaranteed.
Bottom line
I wouldn’t stop at these two stocks forever. I would be comfortable using them to start. Nearly $603 of annual income from $10,000 won’t replace a salary. Reinvest it, add fresh money, and eventually that first $50 monthly payment can start working on bill number two.
