How much do you need to invest to get a safe passive income of $300 a month? Assuming you’re building a dividend portfolio from scratch, we’ll need to figure out which stocks to put in the portfolio and the portfolio’s average yield.
The idea is to populate the portfolio with a diversified group of stocks that pay safe dividends and are at least fairly valued.
Here are a few dividend stocks that I believe fit the bill.
Bank of Nova Scotia stock
Along with the other big Canadian banks, Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) stock has recovered nicely from the pandemic market crash to normalized levels. The dividend stock is reasonably valued and provides a decent yield of just north of 4.5%.
The global COVID-19 vaccine rollout is giving hope that the economy will continue to recover. If that plays out as expected, then the bank can head to the $90 level in a year or two.
BNS stock is likely to start increasing its dividend again in this period. For now, we stick with its current yield. On a 4.5% yield, to get a passive income of $300 a year from BNS stock, you’ll need to invest about $6,667.
Enbridge stock
Enbridge (TSX: ENB)(NYSE: ENB) stock is excellent for passive income. It offers a yield of just over 7.2% right now. Moreover, the dividend stock is undervalued by about 10%.
Enbridge is a leading energy infrastructure company in North America. It provides the essential services of transporting oil and natural gas across the continent. It also has a gas distribution utility and renewable power assets that complement its liquids pipeline and gas transmission assets.
Therefore, its adjusted EBITDA, a cash flow proxy, has been super resilient through economic cycles and the pandemic last year.
Investors can also expect ENB stock to increase its dividend by about 3% per year in the foreseeable future. Based on its current yield of 7.2%, to get an annual passive income of $300 from the Canadian Dividend Aristocrat, you’ll need to invest about $4,167.
Telus stock
Telus (TSX: T)(NYSE: TU) is another popular dividend stock for passive income. It has an oligopoly along with BCE and Rogers Communications. The telecom stock yields close to 5% at writing and is undervalued by about 10%.
The company uses a free cash flow payout ratio for its dividend policy. Last year, this payout ratio was 67%. Since management aims for a payout ratio of 60-75%, at the midpoint, the dividend appears to be safe.
During the pandemic in 2020, it managed to marginally increase its adjusted EBITDA. As its financial results remained defensive even last year, it should have no problem continuing its dividend growth streak for which it has maintained for 17 years.
Telus’s five-year dividend growth rate is 7.1%. Over the next few years, investors can expect the telecom to increase its dividend by about 5-7% per year. On a current yield of 5%, you’ll need to invest about $6,000 for a passive income of $300 a year.
Putting it together
If you start an equal-weight portfolio in these three dividend stocks today, the average portfolio yield will be just over 5.5%. To get a passive income of $300 a year, you would invest a total of about $5,455 (or approximately $1,818 in each stock).
