Passive income is what we all want. Whereas active income comes from your day job, passive income is the cash you receive while you’re doing anything else.
Eating dinner? You’re making money. Walking the dog? You’re still making money. Asleep? You guessed it; you’re making money.
How is that possible? Through investing, of course! And there are many ways to achieve it. There are some that recommend real estate investing as the best way.
However, as you’re here at the Motley Fool, I’m sure you can guess that passive income can also be made through investing in stocks.
In fact, if you start out with these three, you can make hundreds in passive income each and every month!
First, the passive-income stocks
If you’re going to choose passive-income stocks for your portfolio, you need to find companies that will continue paying out long term.
That means digging into sectors that will remain strong no matter what. For me, that comes down to the Big Six banks, essential goods, and real estate. Yes, you can still invest in real estate without purchasing real estate directly, and that comes through real estate investment trusts.
Now, let’s dig into the stocks themselves. Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is a great place to start for passive-income stocks.
The Big Six bank has the highest dividend of the banks and recently bumped it up.
Investors can now receive $6.44 per share per year. It remains strong and valuable, trading at 11.55 times earnings.
Now, among essential goods for passive income, I would look to Loblaw (TSX:L). The company stretches into every area of essential goods, from food to medication.
This comes from being the umbrella company over the President’s Choice brand, which includes Shoppers Drug Mart, No Frills, and more.
You can pick up a dividend of $1.46 per share per year and continue to see strong revenue come in. That’s even during a pandemic.
Finally, invest in real estate by investing in Crombie REIT (TSX:CRR.UN). The passive-income stock recently saw a share price increase after announcing a bought deal for $117 million.
It’s a great defensive option generating revenue from pharmacy and grocery-anchored properties as well as retail.
These are solid tenants in the essential service industry to keep cash flowing. It currently offers a dividend of $0.89 per share per year.
Now, making it work
Now that you have a strong passive-income portfolio underway, it’s time to figure out how much you need to invest.
Because while Crombie is the cheaper of the three, it also has the lowest dividend. Furthermore, CIBC is the most expensive, but it’s probably the strongest dividend and defensive play. And Loblaw, of course, falls somewhere in the middle.
To make $350 per month in dividends, you would need $4,200 per year coming in. So, let’s say you want half of your passive income from CIBC, that would take an investment of $48,913 as of writing.
Then you want $500 from Loblaw. That would take an investment of $33,516. The remaining $1,600 then would come from Crombie at a cost of $31,460. That’s a total investment of $113,889.
If you couple that with a partner’s Tax-Free Savings Account, you together can split the cost to stay within contribution requirements.
That would make it a $56,945 investment for the pair of you, with plenty more room to diversify, and an extra $350 coming in each and every month in passive income.
Forget Daily Volatility: Private Investing’s Promising Outlook For 2022
This correction is not easy on the nerves.
Do you know who is probably sleeping better?
The venture capital investor, who isn’t able to look at the market value of his/her investments every five minutes. As our venture capital expert, Cody Shirk, writes below:
That’s the beauty of being a private equity investor — you don’t have to stress about the daily ups and downs of the stock and crypto markets.
But this doesn’t mean some private equity investors aren’t in for a painful 2022.
In fact, there’s one corner of this market that Cody believes is due for its own correction. And if you’re beginning to build a venture capital portfolio, you need to be very careful before putting your money to work here.
So, what is it?
That’s what Cody will detail for us in today’s Digest.
I’ll let him take it from here.
Have a good weekend,
Jeff Remsburg
Forget Daily Volatility: Private Investing’s Promising Outlook for 2022
The continued selloff on Wall Street has been gut-wrenching. Even after the comeback that started on Tuesday (Jan.
25), the S&P 500 is still down nearly 8% year-to-date, marking its worst month since March 2020.
However, I’m not really concerned by daily fluctuations in the market… to me, it’s just meaningless noise. The bigger picture – where the world is moving – is what I prefer to focus on.
While, as an investor, I’m diversified across stocks, real estate, crypto, and random assets, like art, precious metals, and collectibles, most of my personal wealth is invested far away from Wall Street… in private companies.
Of all the investments I have, my personal stock holdings (and crypto) are the only assets I can check daily. The rest of my investments – real estate, private equity holdings, art, etc. – are nearly impossible to value day to day.
And that’s fine by me.
That’s the beauty of being a private equity investor — you don’t have to stress about the daily ups and downs of the stock and crypto markets. (I talk about all this in my twice-weekly FREE e-letter, Venture Capital Digest. (You can sign up to become a member by clicking here now.)
Instead, you can get a clear picture of what profit opportunities lie ahead just by paying attention to the broader economy and specific trends.
Right now, as the public markets experience massive volatility, I see a lot of profit opportunities ahead for private investors. (I’ll show you why and where in just a moment.).
Of course, you can’t just jump into any private company. In fact, I believe we’ll see the collapse of several mega-valued private companies this year.
So first, before we get to those profit opportunities, let’s take a look at why I think that’s true…
The Collapse of Mega-Valued Private Companies
As you can see in the chart below, an enormous amount of money flowed into private startups in 2021… and the reality is that many of those startups will fail.
***How a quant picks stocks
One area of particular concern, for me, is the fintech sector. One out of every three new privately held startups that became a “unicorn” in 2021 was fintech related. (Unicorns are private companies valued at $1 billion or more.)
Worldwide, nearly 50 new fintech companies entered the unicorn club.
That’s right. Dozens of brand-new fintech companies (many of which are barely generating revenue) are valued at over $1 billion.
To make matters worse, many of these companies are competing with each other. This means that grabbing as many users/customers as possible will be more important than the actual backend tech of each company.
(The fancy backend tech is how many of those companies were able to raise massive amounts of funding in the first place.)
Now I’m not saying that private fintech investments are bad. In fact, I am extremely bullish on fintech.
Our global economy is going through a massive shift in the way value is transacted, and fintech companies with breakthrough tech are driving that change.
But like I mentioned to my Venture Capital Digest readers back in December:
When you start to see a dramatic increase in numerous multibillion-dollar deals happening – in any industry – you should probably take a step back to figure out what’s going on.
The long-term outlook for fintech investments is bright… but we could see a correction in the short term.
Too many fintech companies have raised too much money… and many of them will fail.
Just look at the data…
From Boston Consulting Group:
Q3 2021 fintech investment is 90% higher than all 2020 funding, totaling $34.4 billion globally.
Megadeals, or funding rounds equal to or over $100 million, are driving the dramatic investment growth seen in 2021; 101 megadeals were made in Q3 2021 alone, totaling $23 billion – a 250% increase over the same quarter in 2020.
And from KPMG:
$98 billion in fintech investment (mergers and acquisitions, private equity, and venture capital) in the first half of 2021, compared with $121.5 billion during all of 2020.
Global VC investment in fintech reached a record $52.3 billion in the first half of ’21 – more than doubling the $22.5 billion seen in the second half of ’20.
In my opinion, participating in most mid- to late-stage funding rounds of private fintech companies is a risky move right now. Tread with caution.
But, like I said, I also see a lot of opportunity…
A Massive Shift in Investor Behavior
We are on the cusp of a massive shift in investor behavior, and you can be at the front of the line.
The days of calling up a stockbroker, placing an order, and then crossing your fingers that everything goes well is over.
The financial world, notoriously, has been extremely opaque for the past century.
Our global financial system has been engineered to reward the middlemen, those who tack on fees before the general public has a chance to act.
These middlemen have bent the laws in their favor by lobbying for government-imposed regulations that exclude outsiders – aka, all non-Wall Streeters.
The result?
Retail investors have been excluded from the most lucrative investment opportunities.
But, due to recent changes in federal regulations, private investment opportunities are now available to nonaccredited investors.
But it’s not just these rule changes that are transforming the investing world. The introduction of decentralized finance (DeFi) is now handing the power back to the individual.
Instead of relying on centralized institutions, like the big banks and quasi-governmental agencies, DeFi is enabling everyday people to participate in some of the world’s best investments.
In the near future, there will be less of a division between public investments (the stock market) and private investments (like angel investing, venture capital, and private equity).
Instead, all individuals will have access to all investable opportunities, without any centralized authority subjectively charging “toll road” fees.
We’ll have traditional investment opportunities, like owning shares (or tokens) of a company.
And we’ll have many new investments, like…
Owning fractional real estate (Realty Mogul and many others are already doing this).
Investing in individual people (check out Rally).
Owning a portion of entertainment royalties, like Royalty Exchange.
We’re living in a remarkable time, and as investors we have the opportunity to create massive gains that could lead to generational wealth.
Here are some of the areas that I am excited about:
Longevity and antiaging
Transportation (alternative fuels and autonomous driving)
Artificial intelligence, machine learning, and automation
The Internet of Things (IoT) and 5G
DeFi, blockchain, metaverse, and the rise of cryptocurrencies
Food technology
Space tech
We cover all these topics – and more – in detail twice a week in my free e-letter, Venture Capital Digest(sign up to become a member by clicking here).
In Venture Capital Digest, I work hard to give my readers access to all the secrets… and wealth… that private investing has to offer.
They have the chance to get in on the real ground floor of breakthrough companies… and profit as they climb to be the next Amazon… Google… or Facebook. And they don’t have to worry for a minute about what the stock market is doing.
Inside each issue, I share how you can build your private wealth portfolio…
And I’ll also share the best potential profit opportunities out there right now.
Best part, it’s completely free to sign up. All you need is an email address.
And, if you act today, I’ll throw in a special free report: Top 3 Private Company Investments for 2022.
In the report I dive deeper into private investing and share three groundbreaking companies that you can invest in right now.
There are many exciting private profit opportunities on the horizon. To stay on the forefront of this new and exciting market, be sure to sign-up today.
Regards,
Cody Shirk's Signature
Cody Shirk's Signature
Cody Shirk Editor, Venture Capital Digest
How Passive Income Generates Free Money For Life (with A Secret Sauce!)
One of the world’s most successful investors, mega-billionaire Warren Buffett, once remarked, “If you don’t find a way to make money while you sleep, you will work until you die”.
What the so-called Oracle of Omaha is promoting here is passive income. This is income earned without effort, without working, and even while sleeping.
Passive income comes from assets
Passive income is generated by assets.
These include property/real estate (rental income), deposit accounts (savings interest), and government and corporate bonds (bond coupons).
However, in our world of ultra-low or negative interest rates, it’s much harder nowadays to generate income from these three sources.
The UK’s best easy-access savings accounts pay interest of roughly 0.7% a year (before tax). Likewise, ultra-safe 10-year Gilts (UK government bonds) offer a current coupon/yield of under 1.2% a year. Yikes.
5 Stocks For Trying To Build Wealth After 50
Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.
Click here to claim your free copy now!
I rely on UK shares for dividend income
That’s why my favourite asset for generating income year after year is equities (stocks and shares).
Today, UK equities offer some of the highest income yields globally. This passive income comes from cash dividends paid by companies to shareholders.
Typically, these payments are made half-yearly or quarterly. That said, company dividends are not guaranteed and can be cut or cancelled at any time.
Indeed, during the depths of 2020’s Covid-19 crisis, dozens of major UK-listed firms slashed or suspended their pay-outs.
Furthermore, most UK-listed companies don’t pay dividends to shareholders. Instead, they prefer to reinvest their profits to boost future growth.
But the vast majority of companies in the UK’s FTSE 100 index pay dividends. This index — which tracks the value of 100 of the UK’s biggest listed companies — currently offers a dividend yield of around 4% a year.
For me as an income-seeking investor, this higher passive income is worth the extra risk of investing in shares.
The bonus ‘secret sauce’ of dividend investing
Today, my family portfolio owns no bonds and keeps a single-digit percentage in cash.
Instead, I aim to buy into quality companies that pay attractive dividends and, ideally, those with potential for long-term dividend growth. And as dividends creep up over time, share prices often follow suit.
Hence, dividend investing for passive income also comes with a bonus kicker. Over the years, investing in the right companies can produce significant capital gains (profits from selling shares).
Here’s an example of this ‘secret sauce’, loosely based on a real shareholding that my family owns today. Let’s say that I bought one share for £4 in 2002.
Twenty years later, the share price has grown to, say, £20. Also, this share currently pays yearly dividends totalling £1.
Thus, my stock’s current dividend yield is £1/£20 = 5% a year. But I bought this stock for £4, right? So my running dividend yield is £1/£4 = 25%. But not only am I earning 25% a year (before tax) on my £4 purchase price.
My original investment has quintupled to be worth £20 — a capital gain of £16 a share. Whoa.
This ‘Holy Trinity’ of decent passive income, rising yearly dividends, and capital gains is my core investment strategy.
In 35 years of investing, nothing has generated better returns for my family than this deceptively simple strategy.
Hence, it’s the approach I most recommend to friends seeking to build wealth slowly (rather than trading, speculating, or gambling to get rich quick). Learn more about my dividends with growth system here!
Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices
Make no mistake… inflation is coming.
Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.
Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.
That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…
…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!
Best of all, we’re giving this report away completely FREE today!
Simply click here, enter your email address, and we’ll send it to you right away.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro.
Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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