How to Pay Your Bills With Dividend Income

Tired of paying bills all the time? Get some off your back by generating passive income. Here’s how!

A close up image of Canadian $20 Dollar bills

Image source: Getty Images

There are so many bills to pay. Such is life. Buying dividend stocks is a simple and rewarding way to generate passive income, which will reduce your expenses.

To pay for your bills with dividends, first, list all your expenses. Then replace each expense one by one with dividends. It’d be useful to know your average monthly expense as well.

Make a list of all your expenses

Some common expenses include rent/mortgage, insurance (home/auto/health/life), utility bills (electricity, gas, hydro, internet, and phone), food (groceries and eating out), transportation (public transit, car — refueling/maintenance), education, clothes, entertainment, gifts, donations, etc.

There are apps to keep track of how much you spend on what or you can choose to tally it up yourself in a spreadsheet. In any case, you’d come up with a number — how much do you spend on average per month?

It’d probably be impossible to replace your monthly expense with dividends immediately, but don’t be discouraged. Start with one bill at a time.

How to pay your bills one by one with dividends

My internet costs about $80 a month right now. That equates to an annual cost of $960. If I’m starting from scratch, here’s how I’d go about paying it with dividend income.

Most dividend stocks pay a dividend every three months. Others pay every month, every half a year, or every year. But it doesn’t matter how frequently they pay, as long as I buy quality stocks at good valuations.

Right now, Enbridge, Bank of Nova Scotia, and Brookfield Property are trading at good valuations and provide above-average dividend yields. Specifically, they offer yields of 8.9%, 6.4%, and 9.2%, respectively. This equates to an average yield of just over 8.1%.

To get $960 a year from an equal-weight portfolio in these three stocks, I’d need to invest roughly $11,755 (or about $3,918 in each). It may not be easy to come up with an extra $11,755 today, but the important thing is to get the passive-income machine rolling.

For starters, it’d be nice even to pay just 10% of the internet bill (investing only $1,176) from passive income.

Just like that, anyone can steadily but surely replace his or her internet bill. Once you completely replace that bill with dividend income, pick another recurring bill on your list.

What if you’ve got lots of cash to invest right now?

You may have lots of cash on hand from a special circumstance or, say, from a GIC that just matured. You notice how low interest rates are and realize that you’d earn close to nothing with GICs. You might choose to invest a whole lot more than $1,176.

In that case, you can be a little bolder. Instead of replacing bills one by one with dividends, you might start thinking in terms of replacing a portion of your average monthly expense.

Essentially, you estimate how much you spend in a year and divide that by 12 to get your average monthly expense, since some expenses can be irregular — like car maintenance or entertainment.

If you figure you’re spending, say, $2,500 a month on average and have a big enough amount of savings, you may be able to knock off 5% or $125 a month (or $1,500 a year) immediately with dividend income.

Based on the same roughly 8.1% yield as before, you’d need to invest about $18,367 to generate passive income of $1,500 a year.

The Foolish takeaway

It’s always nice to have passive income to help pay the bills. It’s especially helpful to earn passive income during highly uncertain times like now. Dividend stock investing makes it super easy to get started on building a passive-income stream. 

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 Kay Ng owns shares of Brookfield Property Partners, Enbridge, and The Bank of Nova Scotia. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends BANK OF NOVA SCOTIA and Brookfield Property Partners LP.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »