Want $250 in cash every month? All you need is one stock: Inter Pipeline (TSX:IPL).
Of course, you want to remain diversified across a broad range of investments, but dedicating a slice of your portfolio to income generation can provide several benefits. The most obvious is that you receive extra capital to support any ongoing or surprise expenses. When you don’t need the money immediately, you can reinvest the new capital to buy even more stock.
Want to get started? All you need is a little time, energy, and math.
Do the math
Inter Pipeline pays a monthly dividend of $0.1425. That works out to an annual yield of 7.6%. To earn $250 each month, you’ll need to have $39,500 invested in the stock. That’s it!
If you already have $39,500 that you can dedicate to this passive-income stream, the next steps should be simple. But don’t worry if you don’t have $39,500. With a bit more math, you can reach this target in no time.
Let’s begin by assuming you have zero money saved. Just keep in mind that if you have even a few thousand dollars saved, the following math will go much quicker.
Going from $0 to $39,500 seems like a stretch, but it only takes a handful of years to get there. The trick is to use automated investing. Your passive-income stream will dole out cash to you on a monthly basis. The path to reaching that point is exactly the opposite: you must contribute money consistently on a monthly basis.
Most investment accounts allow for automatic contributions. This automatically transfers money into your account each month. You don’t have have to lift a finger.
If you can commit to $100 per month, how quickly can you reach $39,500? Assuming a 10% rate of return, it will take roughly 15 years. That’s a long time, but your passive-income stream will be for life. Let’s go even faster. If you invest $200 per month, it’ll take just 10 years. At $400 per month, it’ll only take six years.
Understand why this works
The math above is simple. The secret ingredients are time, consistency, and compound interest. But what makes Inter Pipeline so special? Why does it make an ideal investment for a passive-income stream?
The most important thing to know about Inter Pipeline is that it does what its name suggests: it owns and operates pipelines. If you’re not familiar with this operating model, pay close attention.
Pipelines are as close to a legal monopoly as it gets. They cost billions to build and can take a decade to bring online. This drastically reduces industry supply. If there’s a pipeline in the area, every local oil or natural gas producer will use it. It’s safer, quicker, and cheaper than any other mode of transportation. This ensures ample demand, while limited supply ensures high pricing.
Take a look at the 2014 oil bear market, where commodity pricing fell by 50%. Nearly every pipeline stock, including Inter Pipeline, experienced little to no impact, with their high dividends firmly intact. In fact, Inter Pipeline raised its payout. This is simply one of the most reliable stocks to bet on to create a passive-income stream.
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Fool contributor Ryan Vanzo has no position in any stocks mentioned.