If you’re into passive-income investing, the goal right now is likely to create enough extra cash to help supplement your income. That’s an excellent goal, but what if you could create enough to never work again? Early retirement is the dream, but it takes a lot of planning and work. So, let’s look at some ways that you could do this right now!
The first thing you’ll have to figure out is exactly how much you’ll need to be able to retire early. In many provinces in Canada, you can bring in $50,000 of tax-free dividends. If you and your partner do this, that’s $100,000 in annual dividend income without paying a penny in tax! That’s if it’s your only source of income. And that’s not taking into account the returns you’re hopefully also receiving from your investment.
While $100,000 sounds like a lot, make sure you’re digging into stocks that will see you through for decades with strong returns. You’ll also likely have the Canada Pension Plan and Old Age Security helping you out. But let’s stick with the goal of creating a passive-income stream of $50,000 per year.
You’re going to want to find a stock that’s relatively cheap, due for a boost, and is going to see strong returns for decades. A perfect option to consider these days has to be Pembina Pipeline (TSX:PPL)(NYSE:PBA). This company trades at about half its value with a price-to-book ratio of 1.4 times as of writing. The company has a number of pipeline projects coming down the line that will see revenue and shares soar in the next few years.
Meanwhile, it has several long-term contracts that will keep cash coming in for decades. That means its current 7.47% dividend yield is safe right now. To figure out how to bring in $50,000 in annual passive income. It’s going to take a big investment. Right now, to create that income stream, you would need to invest $674,603 into Pembina.
That’s certainly quite a lot of cash. However, let’s say you’re not looking to retire this year. Instead, you need to build towards this amount and hold onto the stock for decades to build this income. If you look at the last two decades, Pembina has grown by 630% as of writing. Let’s say there is going to be similar growth in the next two decades, and for now you reinvest your dividends. In another 20 years, you could turn a $50,000 investment in your Tax-Free Savings Account (TFSA) into $1,057,740.64!
Ready to retire?
So now, you have about $1 million in your portfolio. As of writing, that would bring you in about $78,000 in dividends each year! Of course, that would be taxed, and it’s likely that shares would be worth more, bringing your dividends down. However, this gives you a good idea of how much you can make! Whether you’re about to retire and want to bring in a passive-income stream in a few years or you’re a millennial looking to retire early, this is a strong option to bring in tax-free cash for life!
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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 Amy Legate-Wolfe owns shares of PEMBINA PIPELINE CORPORATION. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.