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Passive Income: How to Make $5,905 a Year in 2020

Kay Ng
Canadian Dollars

The average salary in Canada was $5,905 per month in 2019. Therefore, if you’re able to earn passive income of $5,905 in 2020, it’s as if you have a hidden helper that earns you an extra month of salary.

To make things even better, you can set up a passive-income stream to increase over time.

Miraculously, you can make $5,905 a year in 2020 with savings of less than $100,000.

Passive income from REITs

I love using real estate investment trusts (REITs) to earn passive rental income.

Owning rental properties more or less involves work. It can be a huge hassle if you’re not a handyman or you don’t live close to the properties. Consequently, being a landlord can quickly turn into an actual job that defeats the purpose of passive income.

Moreover, REITs give instant diversification. The risk of a REIT investment is much lower than a rental property’s, as the former’s numerous properties are spread across the country or even internationally.

At writing, SmartCentres REIT (TSX:SRU.UN) offers a succulent yield of 5.9%. It’s likely to grow its payout due to its growth profile and the strong coverage of its cash distribution.

More than 20 years ago, SmartCentres already had the foresight to forge a long-term relationship with Walmart. Furthermore, it struck deals with other high-quality tenants, such as Canadian Tire, TJX, Loblaw, Lowe’s, and Empire. Together, they form the REIT’s top six tenants and contribute 42% of its total rental income.

Currently, SmartCentres has 158 retail properties totaling 34.4 million square feet. Across its entire real estate portfolio, the REIT enjoys a high occupancy rate of 98.1% that towers its peers’.

As a well-positioned retail REIT, it has an abundant pipeline of intensification projects to spur growth. To boot, its payout ratio of about 81% provides a buffer of protection for its cash distribution.

Income investors will be delighted to find out that SmartCentres REIT is well valued today for its income and growth potential. In the last few years, it’s increased its payout by about 3% per year. That’ll likely continue — if not at a higher rate!

How to make $5,905 a year

Assuming a 6% yield, you only need to invest $98,417 to generate passive income of $5,905 a year.

Because SmartCentres REIT’s yield is just shy of 6%, you’ll need to buy other safe dividend stocks, like Enbridge (TSX:ENB)(NYSE:ENB), which offer secure yields of more than 6%. That’s all fine and dandy anyway, because it would be risky to put all your eggs in one basket.

Enbridge’s regulated business is on par with Fortis’. While some areas of the Canadian oil patch is in hot water, Enbridge should be pretty smooth sailing in 2020.

About 98% of the company’s cash flow is contracted and highly predictable. As well, 93% of its counterparties are investment grade. It’s no wonder that Enbridge’s EBITDA is spotted to remain stable or even improve during economic disorder.

As the largest energy infrastructure company in North America with an enterprise value of $175 billion, Enbridge has plenty of organic growth opportunities across its business. Additionally, it’s ready to execute its secure capital program of $11 billion.

Investor takeaway

Because we’re in a late economic cycle, you are making the right choice by investing defensively with a focus on passive income.

SmartCentres REIT and Enbridge stocks are spectacular selections that offer good value, safe yields of about 6%, and dividend growth that will beat inflation.

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Fool contributor Kay Ng owns shares of Enbridge. David Gardner owns shares of Lowe's. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends Lowe's and The TJX Companies.

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