So you have a tax -free savings account (TFSA) and you want to start generating passive income. That means that you are probably looking for dividend shares, with real estate investment trusts (Reit) some of the best options there are.
But before you dive into the highest dividend yield between Reit’s, it is a great idea to look at which are essential. That’s why we’re going to watch today Slate Grocery Reit (TSX: SGR.UN), a top dividend share that could possibly change $ 20,000 a month into $ 200!
How to create that income
Shares of SGR currently act at around $ 14.50. So if you are looking for passive income from $ 20,000, you may not be completely out of the dividend yield of 8.2%. With $ 1.20 every year, or $ 0.10 per month, that would mean that around 1,384 units would buy. The distribution would then come to around $ 138 every month.
| COMPANY | Recent price | Number of shares | DIVIDEND | Total payout | FREQUENCY | Total investment |
|---|---|---|---|---|---|---|
| Sgr.un | $ 14.45 | 1,384 | $ 1.20 | $ 1,661 | Monthly | $ 20,000 |
Now you could increase that investment to $ 34,680 to get there. However, do not forget that passive income comes from the return before you dump more cash. So if shares only climb 3.7%, you could still make up for the difference of $ 739, which would make your goal of $ 200 a month. Together you would win $ 1,661 from dividend income and $ 739 as a return for $ 2,400 in annual income, or $ 200 a month.
But do you have to?
Again, don’t believe it alone on my word. Instead, let’s look a little deeper to see if that investment is worth your time. Slate shares seem to be built for long-term income, anchored with 94% occupation by necessary supermarkets. These perform well, even in decline, which support the cash flow much better than most retailers.
What is more, the lease extensions climbed 13.8%, with new lease contracts with 28.8% above earlier rental prices. This only shows that the benefit is already being recorded. But with units that are traded in the vicinity of book value – in fact just lower at 0.93 times book value – and the net asset value at US $ 13.78, shares look like a stem.
Consideration
Now it’s not a perfect stock. The payment of the second quarter was 103% on adapted funds of Operations (AFFO). This means that distributions have exceeded the actual cash flow. Although this can be manageable if it can be temporary, it lifts a red flag if it persists.
Moreover, the Reit has a higher beta at 1.2, so that units can certainly swing more than larger, stable Reit’s. Moreover, the occupation fell around 80 basic points to 94% on an annual basis. Although still healthy, further dips can put even more pressure on the net business income.
Bottom Line
So yes, it is certainly possible to create a passive income of $ 200 a month, and at least $ 138 of an investment of $ 20,000. Moreover, Slate looks like a defensive supermarket-worshiped stock with a solid long-term foundation. But with AFFO more than 100%it is not so much a ‘sleeping easy’ income stock. Still, if you feel comfortable with a higher return on the risky side, Slate can be a stock that is perfect for your TFSA.
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