Canadians: Invest $200 Monthly and Get $500 a Month in Passive Income

I’ll talk about the power of compounding and disciplined long-term investing.

| More on:
Payday ringed on a calendar

Image source: Getty Images

It’s a myth that the stock market is a game of the rich. You do not need to have the significant upfront cash to start investing. A small amount invested consistently over the long term will do wonders for you! And that’s precisely why they say time in the market is more important than timing the market.

The longer you remain invested, the higher the compounding effect. So, time plays a more crucial role than the absolute investment value.

Disciplined investing for a stable passive income

Let’s say you are a conservative investor and prefer low-risk stocks. If you invest $200 a month in a safe stock like Enbridge (TSX:ENB)(NYSE:ENB), you will likely accumulate approximately $97,000 in 15 years.

Historical returns might not repeat in the future, but mature companies like Enbridge grow steadily. Based on its historical return, we have assumed a 13% CAGR for ENB returns for this calculation.  

Though Enbridge belongs to the volatile energy sector, it is a relatively safe bet, as it is a pipeline company. It earns stable revenues from long-term contracts and has little direct exposure to oil and gas prices. Moreover, the company pays stable dividends, thanks to its stable and predictable earnings.

So, based on Enbridge’s current dividend yield of 6.2%, a reserve of $97,000 will earn a passive income of $6,014 a year, or $500 a month.

As the company increases its profits, it will increase dividends, ultimately boosting your passive income. Note that you will start receiving dividends every quarter after your first investment. 

Investors typically underestimate dividend-growth stocks. It is one of the most powerful ways to achieve financial independence in your sunset years.

Defensive TSX stocks for the long term

Another safe TSX stock for a stable passive income could be BCE (TSX:BCE)(NYSE:BCE). Telecom companies have reasonable visibility about their earnings. BCE is no exception and has a long dividend payment history.

It currently yields close to 6%. So, a similar investment could fetch you a decent passive income in your later years.

Apart from the stable dividend, BCE could see superior earnings growth, mainly driven by the 5G revolution. It has been aggressively investing in expanding its geographical coverage and network improvements.

Higher growth might lead to higher capital gain and faster dividend growth.

Notably, stocks like BCE are less volatile than the broader markets. That’s why these stocks outperform amid broader selloffs and are perceived as defensives.

Investors with a stomach for high volatility can consider investing in high-growth tech stocks. For a consistent passive income, this reserve accumulated over the years can then be moved to safe, dividend-paying stocks.

It would be prudent if you invest via Tax-Free Savings Account (TFSA). It will not only enable tax-free capital gains but will also generate passive income for a lifetime.

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.

The Motley Fool recommends Enbridge. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

More on Dividend Stocks

A worker gives a business presentation.
Dividend Stocks

2 Top TSX Dividend Stocks to Buy in This Uncertain Market

Here's why Manulife (TSX:MFC)(NYSE:MFC) and SmartCentres REIT (TSX:SRU.UN) are two top TSX dividend stocks to consider right now.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Wealth: 2 Undervalued TSX Stocks to Buy Now and Own for 25 Years

RRSP investors can now buy top TSX stocks at discounted prices.

Read more »

Growth from coins
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

As market volatility escalates, here are three top dividend stocks that provide steady passive income to hold for the long-term.

Read more »

You Should Know This
Dividend Stocks

TFSA or RRSP: Number 1 Rule of Investing

It's easier said than done to never lose money from stock investing. Here are some tips that can help you…

Read more »

Young woman sat at laptop by a window
Dividend Stocks

Stocks for Beginners: 3 Reliable Dividend Stocks to Buy Right Now

Are you new to investing but don’t want a lot of risk? Here are three safe dividend stocks to build…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

TFSA Passive Income: 2 High-Yield Canadian Stocks for Retirees to Buy Now

Retirees can buy top Canadian dividend stocks at cheap prices right now for a TFSA focused on passive income.

Read more »

Dividend Stocks

2 Value Stocks to Buy Right Now

The stock market boasts several heavily discounted stocks trading for a bargain. Here are two such undervalued stocks to consider…

Read more »

rail train
Dividend Stocks

3 TSX Stocks I Own and Will Buy More of If the Stock Market Crashes

These TSX stocks may be down, but don't count them out. In fact, buy up as much as you can…

Read more »