There are several ways to generate an income stream. You could, for example, invest in a monthly dividend stock that pays out on a fixed schedule. Alternatively, you could consider investing in a Guaranteed Investment Certificate (GIC).
For many Canadians, GICs represent the easier way to earn guaranteed returns without taking on risk. You know exactly what you’ll get back at maturity, and the principal amount remains protected within deposit-insurance limits.
While that does work, opting for a monthly dividend stock can provide more income and a regular monthly payout, provided that investors choose the right company.
One option for those investors to consider is SmartCentres REIT (TSX: SRU.UN). As of the time of writing, the real estate investment trust (REIT) offers a yield of 6.93%, which is far more than a GIC can provide.
Here’s how the two options compare.
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GICs offer safety, but income investors may want more
One of the main reasons GICs are popular is because they are simple, predictable, and designed to preserve principal. In short, it’s a great place to park cash.
The trade-off is that the quoted interest rate caps income potential for a fixed term. Once the term ends, if you want to continue to stay invested, you need to reinvest at whatever rate is available at that time.
That means GICs can provide stability, but they don’t offer much potential in the way of capital appreciation or growing income over time.
That’s where the case for owning dividend stocks, or more specifically, a monthly dividend stock, fits into a larger portfolio. They represent a way to earn more income while also benefiting if the business itself grows.
SmartCentres is a monthly dividend stock to consider
SmartCentres provides investors with that monthly distribution. That can appeal to investors looking for monthly cash flow.
Given the current yield, a $25,000 investment in SmartCentres will generate just under $145 every month.
For those investors who aren’t ready to draw on that income yet, they can reinvest that distribution to generate several new shares each month. This allows any eventual income to continue growing until needed.
One clear difference is unit price. An investment in SmartCentres exposes investors to fluctuating market prices. That price can either move up or down, affecting the total value of the initial investment.
That’s a key contrast from a GIC, which keeps the principal fixed and known throughout the term.
Why SmartCentres has room to keep growing
SmartCentres is one of the better-known REITs in Canada. The company owns a large portfolio of retail properties. SmartCentres’s retail portfolio is focused on businesses that shoppers continue to visit in person for necessities. That includes grocery stores, pharmacies, restaurants, banks, and other service-oriented retailers.
Adding to that appeal is the fact that many of those properties are anchored by Walmart. That gives the REIT a significant traffic boost to its shopping centres.
SmartCentres is also developing mixed-use communities through what it calls SmartCentres Place projects. These sites combine retail and residential, offices, and other uses on a single property.
That gives the REIT another way to generate revenue from land it already owns.
SmartCentres vs. the GIC: Which one will you choose?
The answer to that really comes down to an investor’s appetite for risk and how liquid those funds need to be.
SmartCentres can offer high income and more liquidity, but it comes with greater risk of price fluctuation. For investors comfortable with that risk, the 6.93% yield is tempting.
A GIC, however, offers a lower, fixed income and guaranteed principal. It also comes with less liquidity than owning a REIT on the market.
