If you’re an investor that’s not looking for long-term growth and instead are more focused on generating dividend income, the good news is that there are plenty of options for you. Dividend stocks come in all shapes and sizes and you can invest in those that suit your investing profile best. Below I’ll show you a couple of scenarios of how you can earn $500 in dividend income every month.
The first method involves investing a lot of cash and relying on a stable, slightly above-average yield.
SmartCentres Real Estate Investment Trust (TSX:SRU.UN) is one of the larger REITs you can invest in on the TSX, and it’s a good value buy with a variety of properties across the country. It’s a well-diversified REIT that has steadily grown its sales over the years and looks to be a great long-term buy, which is a great feature when it comes to finding a quality dividend stock.
The stock also pays its shareholders a monthly dividend of 15 cents per share, which currently yields around 5.3% per year. That’s a good dividend rate, as 5% is generally what I’d consider a reasonable dividend. It’s not high enough to get investors worried and yet strong enough that it’s an attractive income investment.
SmartCentres has also increased its dividend payments over the years, meaning that you could earn more on your initial investment just by holding onto the stock.
Being able to generate $500 a month in dividends means that you’d need to be receiving payments totalling $6,000 for the entire year. At SmartCentres current dividend rate, which means that you’d need to invest just under $114,000 to accomplish that.
Although a sizeable investment required, it would give you a good source of cash plus the opportunity to benefit from the likelihood that the stock rises in value, especially given the solid growth that SmartCentres has generated over the years. In five years, SmartCentres stock has risen by more than 25%.
Another approach you can take to generate the same level of dividends is by looking at a higher-yielding stock.
Boston Pizza Royalties Income Fund (TSX:BPF.UN) is a bit more volatile than SmartCentres, as its sales have shown more modest growth while profits have been falling over the past two years. Although the fund benefits from the success of one of the country’s top restaurant chains, there’s still a bit more risk, as the fund’s share price has fallen by 13% over the past five years.
However, with the stock trading at only 1.4 times its book value and rising more than 15% since the start of the year, the bleeding may have finally stopped. If that’s the case, it could be a terrific time for investors to buy, as the stock is yielding 7.9%.
At that rate, you’d only need about $76,000 to generate $500 a month in dividends. The danger is that if the fund continues to struggle, the dividend payments could begin to shrink. There’s always a risk when it comes to relying on dividends, but given the strong brand behind the stock, I’d expect that it should remain strong for the foreseeable future.
Ultimately, these are just a couple of options for investors and you should always consider your own risk profile before settling on the right strategy for your portfolio.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor David Jagielski has no position in any of the stocks mentioned.