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Zero to Hero: Transform $20,000 Into Over $1,200 in Annual Passive Income

Christopher Liew, CFA
·4 min read
little girl in pilot costume playing and dreaming of flying over the sky
Image source: Getty Images

Written by Christopher Liew, CFA at The Motley Fool Canada

People invest in dividend stocks to create extra income or passive income streams. The stock market is not exclusive to the rich, so anyone with money to invest has an equal chance of earning or making money on the TSX.

For regular folks, the seed capital can come from savings or excess cash. The windfall from side hustles like online selling or even tax refunds can also be investible funds. Assuming you have these sources, a one-time investment of $20,000 in Crombie (TSX:CRR.UN) and Dexterra Group (TSX:DXT) can transform into $1,286 in passive income yearly.

Growth-focused

Crombie has nearly 60 years in the real estate business. Empire Company Limited (TSX:EMP.A), a renowned food retailer in Canada, owns 41.5% of the $2.4 billion real estate investment trust (REIT). The REIT owns 304 properties where essential service tenants account for 72% of the annual minimum rent (AMR), and 84% of the properties are grocery-anchored.

Besides the nearly 97% committed occupancy rate at year-end 2023, the weighted average lease term (WALT) is 8.8 years. In the properties where Empire is the anchor tenant, the WALT is 11 years. Crombie’s strategic partnerships with Empire and Sobeys lend a defensive position and assure long-term earnings and cash flow stability.

In 2023, property revenue and net operating income (NOI) increased 3% and 2% year over year respectively to $440.9 million and 287.4 million. Its Chairman, J. Michael Knowlton, said last year was a rollercoaster ride for the real estate industry. Unmet expectations of lower interest rates and speculation heightened volatility.

Nonetheless, completed developments, renewals, and new leasing activities helped increase property revenues. Crombie closed the year with $584 million in available liquidity. According to management, the development pipeline should drive future value creation. The robust pipeline of 26 development projects (3 near-term and 23 medium- to long-term) are value enhancers.

For Crombie’s President and CEO, Mark Holly, the REIT can deliver stable and consistent results by remaining nimble and adaptable when economic conditions change. He adds that Crombie is focused on long-term ownership and operations of properties. If you invest today, the share price is $12.98, while the dividend yield is 6.86%.

Visible growth potential

Dexterra’s growth potential in the Specialty Business Services industry is visible. The $374 million company engages in facilities management and operations, food services, workforce accommodations, energy services, modular solutions, and forestry. Its diverse support services platform delivers the revenue and profits.

In 2023, consolidated revenue increased 15% to $1.1 billion versus 2023, while consolidated net earnings soared 624.3% year over year to $26.8 million. Notably, free cash flow (FCF) rose 31.8% to $53.1 million from a year ago. The latest growth catalyst is an Integrated Facility Management (IFM) business acquired in Virginia.

The IFM business caters to federal government agencies and commercial clients in the US and should bring in approximately US$50 million in annual contracts with a substantial backlog. At $5.83 per share, this industrial stock pays a 6% dividend.

Equal allocation

The premise is that there’s an equal investment allocation ($10,000 each) in Crombie and Dexterra. Given the dividend yields, the combined position will generate $1,286 in passive income yearly.

The post Zero to Hero: Transform $20,000 Into Over $1,200 in Annual Passive Income appeared first on The Motley Fool Canada.

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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2024