The Canadian government offered a $2,000 per month for those who have lost their jobs due to the pandemic. The aid — known as Canada Emergency Response Benefit — will end in a couple of months and has already notably burdened government finances. How about creating your own CERB that will last for a lifetime? It’s totally doable, and all you need is time and discipline.
Creating your own CERB
Let’s say one wants to create an extra monthly income or our own CERB of $2,500 per month. A sizable reserve of approximately $400,000 will be enough to generate that much.
We will discuss how to build that reserve in a while. Luckily, Canadians have many options to create a passive-income stream through dividends with such a reserve.
For example, investors can consider top energy midstream company Enbridge (TSX:ENB)(NYSE:ENB). It is one of the stable dividend-paying stocks in Canada. If one invests $400,000 in Enbridge, they will generate $32,000 per year in dividends.
Also, its consistently growing dividends will ultimately take care of inflation. Though an energy company, Enbridge’s earnings are not hampered by volatile crude oil prices. And that’s why it pays stable dividends and has a relatively slow stock movement.
That means a $400,000 investment will generate $28,000 per year in dividends. Canada’s third-largest bank has been around for centuries and emerged through multiple recessions.
Stability should be the focus
Investors should note that they don’t need to look for some fancy, high-growth, offbeat stocks to park their hard-earned money. Businesses that are around for decades and have risen through multiple downturns generally offer stable returns for the long term.
Let’s look at how one can create a reserve that can generate stable dividend income for a lifetime. Canadians who are still working have the most important thing that’s needed for investment: time.
An investment of, say, $6,000 per year, or $500 a month, in a diversified, safe stock portfolio would create a handsome sum of approximately $400,000 in 20 years’ time. A higher investment amount per month should take a shorter time to create a similar reserve.
Don’t get intimidated by the numbers. The point here is that consistent, disciplined investment in high-quality stocks would generate a healthy reserve, which will be enough in the later years. And that will help avoid having to depend on last-minute options like the CERB.
Putting in $500 monthly in shares like Enbridge or Bank of Nova Scotia will be a good idea to start with. Though pandemic-driven challenges might dominate in the short term, they offer attractive longer-term growth prospects.
These top TSX stocks have returned nearly 12% compounded annually over the last 20 years, notably beating the TSX Index and also fitting into our investment thesis.
Interestingly, Canadians have one of the most tax-efficient investment avenues in the form of a Tax-Free Savings Account (TFSA). Dividends or capital gains generated within the TFSA will be tax exempt throughout the holding period and at withdrawal.
A TFSA will be highly useful when creating a retirement reserve or even a passive-income stream for your sunset years.
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Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends BANK OF NOVA SCOTIA.