The S&P/ASX 200 Index (ASX: XJO) stock Charter Hall Long WALE REIT (ASX: CLW) could be a very effective choice for passive income.
It's a real estate investment trust (REIT) that owns a diversified portfolio of commercial properties including hotels and pubs, government-tenanted offices, data centres and telecommunications, service stations, grocery and distribution and plenty more.
Over the years, it has expanded its portfolio both in size by expanding into new subsectors, boosting its diversification and broadening its search zone for opportunities.
As a REIT, it's attractive because its tenants are signed on for long leases. The business has a long weighted average lease expiry (WALE) of around a decade, hence the name of the business.
The ASX 200 stock's rental income is regularly growing thanks to both fixed annual rental increases and inflation-linked rental increases.
While higher interest rates have been a headwind in recent years, the RBA rate cuts could help both rental profits and property valuations.
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How to make $200 a month of passive income
Pleasingly, the business pays a distribution every three months. But, to reach a monthly target, we'll need to think of the business with an annual target in mind.
To make $200 per month, we're talking about an annual goal of $2,400 per month.
The business has guided that it expects to pay an annual distribution per unit of 25 cents. At the current Charter Hall Long WALE REIT unit price, that translates into a distribution yield of 5.9%.
If we owned 9,600 units of this ASX 200 stock, we'd receive $2,400 of annual passive income, based on the projected payout.
The projection on Commsec suggests the business could increase its annual payout by 3.2% to 25.8 cents per unit in FY26. That translates into a forward distribution yield of 6.1%. Owning 9,600 units would translate into a distribution of $2,476.80 cash for an investor.
A great time to invest in the ASX 200 stock
With the RBA cutting the cash rate, and expectations for more cuts in the next 12 months, I think this is a great time to consider the business. It offers a good yield, its interest costs could reduce and property valuations could rise.
Charter Hall Long WALE REIT units are currently trading at an 8.5% discount to its net tangible assets (NTA) as of 31 December 2024.
In my view, this could be a very effective investment for passive income and it's still a good time to invest.
