3 Real Ways to Make $500 in Monthly Passive Income

Dividend stocks like Enbridge can provide $500 per month in passive income. What’s the catch?

| More on:
Businessperson's Hand Putting Coin In Piggybank

Image source: Getty Images

If you read the financial media, you’ll probably have noticed that a lot of people out there are promoting passive income opportunities. The exact amount of income promised varies: figures like $500 or $1,000 per month are common.

If you think these promises are too good to be true, you’re mostly right. It is possible to get $500 per month in passive income from investments, but it takes around $200,000 in savings.

All tallied, $500 a month is $6,000 per year. If you invest $100,000 at a 6% yield, you’ll get your $6,000 payout (assuming no disasters). However, 6% yields are very high, and they tend to indicate high risk. If you invest $200,000 in dividend stocks, you can get $6,000 a year/$500 a month fairly safely. That only takes a 3% yield, which is about average for a dividend-paying Canadian stock. In this article, I will explore three real ways to make $500 per month in tax-free passive income.

Guaranteed investment certificates (GICs)

There are two ways in which you could get $500 per month in passive income from GICs:

  • Invest $120,000 in a 5% yield GIC right now, and collect $126,000 in a year. The $6,000 return averages out to $500 per month.
  • Invest $10,000 in a 5% yield GIC every month from January 2023 to December 2023. You’ll collect $10,500 in every month of 2024, which is a $500 return on each prior-year purchase.

Now you might be looking at the numbers above and thinking “gee, that’s a lot of money to invest just to get $500 a month in passive income, isn’t there a cheaper way to do this?” The answer is yes and no. Without taking risks, it’s no: you simply need to invest $120,000 to get $500 in risk-free, monthly passive income in Canada. And note that 5% is the highest yield currently available on a one-year GIC; anything with higher yields than GICs has risk. However, if you’re willing to assume risk, then there is reason to think that, yes, you can get $500 a month in passive income with less than $100,000 invested.

Bond funds

A slightly risky way to get $500 in monthly passive income is to invest in monthly pay bond funds. These funds often have higher yields than treasuries, to compensate for their higher risk. The asset management company PIMCO has a number of bond funds that yield 10% per year. At that yield, you only need to invest $60,000 to get $500 per month in passive income. Buyer beware, though: some of the low-rated bonds in such funds are risky indeed.

Dividend stocks

High yield dividend stocks like Enbridge (TSX:ENB) can provide you with $6,000 in annual passive income in exchange for you buying their shares. The way this works is, you buy the stock, and it pays you some of the underlying company’s profit every month or quarter. Enbridge has a 6.5% dividend yield, which means you only need to invest $92,307 in order to reach your $6,000 per year dividend goal. Below you’ll see a table that shows exactly how many ENB shares you’d need to buy to get $6,000 in annual dividend income, which averages out to $500 monthly.

CompanyRecent PriceNumber of SharesDividendTotal PayoutFrequency
Enbridge$52.401,686$0.89$1,500Quarterly
Enbridge income scenario

Now, Enbridge is a quarterly pay dividend stock, meaning that you get your dividends 4 times per year rather than 12. That doesn’t matter much over the long run, but it does mean that you’re technically getting $1,500 quarterly here, not $500 monthly. If you really need a monthly payout schedule, you could look at monthly pay pipeline stocks like Pembina Pipeline, which pay every single month.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge and Pembina Pipeline. The Motley Fool has a disclosure policy.

More on Energy Stocks

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, February 2

More corporate earnings reports could give further direction to TSX stocks today.

Read more »

oil and gas pipeline
Energy Stocks

Better Buy: Suncor Stock or Enbridge?

Amid the favourable environment, would you be better off investing in ENB or SU energy stock right now?

Read more »

Electric car being charged
Energy Stocks

Your Play to Get in on the 2023 EV Boom

Here's why Magna International may be the best way for Canadian investors to ride the EV boom.

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Energy Stocks

Algonquin Power & Utilities Stock Just Hit 52-Week Lows: Is it a Good Stock to Buy? 

Algonquin Power & Utilities (TSX:AQN) is trading near its seven-year low after dividend and outlook cuts. Is it a buy…

Read more »

tsx today
Energy Stocks

TSX Today: Why Canadian Stocks Could Fall on Tuesday, January 31

Despite the expected weakness in stocks today, the TSX index is on track to end the first month of 2023…

Read more »

Oil pumps against sunset
Energy Stocks

5 Things to Know About ARC Resources Stock in January 2023

Should you buy ARX stock?

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

2 Energy Stocks That Could Hold Up if Oil Prices Turn

Suncor Energy (TSX:SU) and Cenovus Energy (TSX:CVE) are great energy stocks that could continue higher through 2023.

Read more »

oil tank at night
Energy Stocks

2 Sub-$3 TSX Energy Stocks I’d Buy in 2023

Here are two under-$3 TSX energy stocks you can buy in 2023 and hold for the long term.

Read more »