Tag Archives: NYSE:O

How to Create a Passive Income Portfolio

To create a passive income portfolio, you can invest in bonds or stocks that generate interest or dividend income without you having to lift a finger. I prefer to invest in stocks which have outperformed bonds in the long run.

I also like the concept of investing in stocks because I’m owning stakes in businesses and benefiting from their profits (although I also take on their risks). This is markedly different from purchasing bonds for which you’re lending your money to governments or corporations for interests in return.

In fact, dividend investing is my favorite way to generate passive income. There are so many safe dividend stocks to choose from. Even in a booming stock market like today, you can still find quality businesses at good valuations.

Here’s how to create a passive dividend income portfolio:

  • Buy stocks that offer safe dividends at good valuations
  • Diversify but don’t di-worsify
  • Aim for a low-maintenance portfolio that’s replicable, scalable, and can be largely automated
grow a money tree

Buy stocks that offer safe dividends

The U.S. and Canadian stock markets offer yields of 1.8% and 2.8%, respectively. There are plenty of safe dividend stocks that offer higher yields of about 3-6%.

However, typically, the higher the yield of a stock, the slower its dividend growth will be. (Sometimes, high yielders don’t increase their dividends.) Similarly, low yield stocks tend to increase their dividends faster. Typically, dividend growth stocks are safer and better than stocks that simply maintain their dividends.

Buy stocks at good valuations to protect your invested capital and maximize your gains.

Here are a few examples.

A high yield example

NorthWest Healthcare Properties REIT (TSX:NWH.UN) owns a high quality portfolio of medical office buildings and hospital properties in major markets in Canada, Brazil, Germany, The Netherlands, Australia, and New Zealand.

The healthcare REIT generates stable cash flows from having a high occupancy of about 96% and a weighted average lease expiry of 13 years. Additionally, it gets organic growth from having more than 70% of its net operating income indexed to inflation. It also has CAD$370 million projects in its development pipeline that’ll also add to growth.

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When Is It The Best Time To Buy O And The Others?

If you’re looking for income, check out the triple net lease space, which has experienced a nice pullback recently. Particularly, for Realty Income Corp. (NYSE:O) and its two other peers, National Retail Properties, Inc. (NYSE:NNN) and Store Capital Corp. (NYSE:STOR), their shares have declined 14-25% in the last year.

I thought Store Capital was a good bargain at below $21 per share. Yet, in a matter of a few days, the shares have continued to fall another 5% or so.

In the last few days, all three companies have experienced pullbacks. So, there are some forces that are affecting the industry. The anticipation of higher interest rates (and rates actually rising) are some of them.

Realty Income shares have been the most resilient no matter in the price action of the last year or the last few days. This is not a surprise because as I said before, Realty Income is the bluest of the blue chips in the group.

After the pullbacks, the stocks offer decent yields of 4.6-5.8%.

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