Making money from the stock market requires buying and selling stocks. The idea is to profit from capital gains when you sell stocks for higher prices than you paid them for.
When you build a dividend stock portfolio, you can potentially reduce tremendous amounts of work by focusing only on the buying. If you want to create a durable dividend stock portfolio with less work, here are three tips for you!
Dividend stock selection
You want to select dividend stocks with durably growing dividends for your buy-and-hold dividend portfolio. Here are some examples.
High inflation is already upon us. As BBC News reported, the U.S. saw consumer prices jump 4.2% in the past 12 months. Price surges for certain goods can be even more ridiculous. Second-hand car prices rose 10% in April versus March.
A part of that had to do with the shortage (and consequential price rise) in basic materials like steel. The situation is similar for other raw materials like copper and lumber.
The Federal Reserve aims for a long-term inflation rate of 2%, as does the Bank of Canada. The Federal Reserve explains very well here how a stable rate of 2% helps with keeping maximum employment and consumer price stability. It further clarifies that an extended period of low inflation is likely to lead to a period of higher inflation (triggered by monetary policy), which is what we’re seeing now in both countries.
At the very minimum, Americans and Canadians need to ensure their savings are earning at least 2% a year from interest income. Of course, we can do better than that with dividend stocks.
You can still apply for Canada Revenue Agency’s (CRA) Canada Emergency Response Benefit (CERB) to get $2,000 a month if you haven’t already. However, eventually, the benefits will come to an end and there’s no guarantee that work will be readily available when the COVID-19 crisis ends.
Here’s how you can get $2,000 (or more) per month permanently.
Unless you think brick-and-mortar retailers and offices are dead, now is a great time to buy depressed real estate investment trusts (REITs) in these sectors because of the COVID-19 impacts.
For example, during this COVID-19 pandemic, I bought positions in Brookfield Property Partners (TSX:BPY.UN)(NASDAQ:BPY) / Brookfield Property REIT (NASDAQ:BPYU), H&R REIT (TSX:HR.UN), SmartCentres REIT (TSX:SRU.UN), and STORE Capital Corp (NYSE:STOR).
Near-term Risk Exists in REITs, As Does Long-term Opportunity!
Don’t get me wrong. In the near term, there’s indeed high risk. These REITs that have large retail or office exposure can continue to be depressed and slash their dividends.
H&R REIT only collected 50% of its retail rents but 80% of its total rents in May. Enclosed malls are doing the worst during the pandemic as other than essential services tenants like grocery stores, others had to be shut down at one point or another to keep the public safe.
In April, I suspected that H&R REIT could cut its cash distribution in half. And in fact, it cut its cash distribution by 50% in May. That said, the stock still offers a nice yield of 7.1% at CAD$9.70 per unit.
I still believe H&R REIT can trade at CAD$19 per share in the future. That’s almost a double! As well, it’ll be able to restore its cash distribution to higher levels in a normalized market. Meanwhile, buyers today get paid a handsome passive income to wait.