How to Generate $500 in Passive Income and $368K in Returns

Not all of us have enough to create $500 per month in passive income, but anyone can eventually get there through reinvestment.

| More on:
money cash dividends

Image source: Getty Images

Passive income is something every investor is interested in, especially right now. Today, I’m going to show you just how much you can lock in — first, by investing to create $500 per year and eventually moving up to $500 per month.

Find the right stock

If you’re looking for a passive-income stock, you’ll want a strong, monthly payer that’s bound to be around within the next decade. Today, I’m going to focus on Peyto Exploration & Development (TSX:PEY). The main reason? The company has an incredibly high dividend yield at 10.73% as of writing. Yet it remains in value territory trading at 6.3 times earnings.

Of course, part of the reason this stock has a high yield and cheap price is, it’s in the oil and gas sector. This sector had a wild ride in the last year, but the company is starting to show improvements in the last few months. Passive-income seekers wanting more returns and a lock-up of this yield should do so soon.

Start off with $500 per year

To start, let’s say you’re an investor who wants to create $500 in passive income each year. Right now, Peyto stock’s 10.73% dividend yield comes to $1.32 per share annually. This would mean to create $500 in income annually, you would need about 378 shares.

Here’s how that works out below in terms of how much you would need to invest as well.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
PEY$12.59378$1.32$500Annually$4,759.02

As you can see, to create that $500 per year, an investment of $4,759 doesn’t really break the bank. However, it might if you’re seeking $500 per month. Let’s look at how much you’d need to invest to get there.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
PEY$12.594,545$1.32$500Monthly$57,221.55

Making it monthly

As you can see, that’s a far larger investment. Now, if you were to reinvest that $500 each year, let’s see how long it would take to reach $500 per month in passive income. From there, you decide to put an additional $1,500 into Peyto stock. Based on its historical data, it would take 23 years to reach $6,003 in annual passive income, or $500 each month.

 

Year

Shares Owned

Annual Dividend Per Share

Annual Dividend

After DRIP Value

Annual Contribution

Year End Shares Owned

Year End Stock Price

New Balance

1

378

 $1.34

 $505.41

 $5,289.77

 $1,500.00

523.71

 $13.94

 $7,298.98

2

523.71

 $1.36

 $714.23

 $8,046.14

 $1,500.00

669.36

 $15.43

 $10,327.13

3

669.36

 $1.39

 $931.13

 $11,297.71

 $1,500.00

814.01

 $17.08

 $13,902.72

4

814.01

 $1.42

 $1,155.00

 $15,102.73

 $1,500.00

956.82

 $18.91

 $18,090.32

5

956.82

 $1.45

 $1,384.78

 $19,524.73

 $1,500.00

1097.02

 $20.93

 $22,960.39

6

1097.02

 $1.48

 $1,619.45

 $24,633.23

 $1,500.00

1233.96

 $23.17

 $28,589.99

7

1233.96

 $1.51

 $1,858.03

 $30,504.39

 $1,500.00

1367.09

 $25.65

 $35,063.51

8

1367.09

 $1.54

 $2,099.65

 $37,221.76

 $1,500.00

1495.93

 $28.39

 $42,473.56

9

1495.93

 $1.57

 $2,343.49

 $44,877.23

 $1,500.00

1620.13

 $31.43

 $50,921.91

10

1620.13

 $1.60

 $2,588.82

 $53,571.91

 $1,500.00

1739.41

 $34.79

 $60,520.55

11

1739.41

 $1.63

 $2,835.00

 $63,417.22

 $1,500.00

1853.56

 $38.52

 $71,392.92

12

1853.56

 $1.66

 $3,081.47

 $74,536.08

 $1,500.00

1962.45

 $42.64

 $83,675.13

13

1962.45

 $1.70

 $3,327.76

 $87,064.22

 $1,500.00

2066.03

 $47.20

 $97,517.45

14

2066.03

 $1.73

 $3,573.47

 $101,151.56

 $1,500.00

2164.29

 $52.25

 $113,085.92

15

2164.29

 $1.76

 $3,818.29

 $116,963.86

 $1,500.00

2257.27

 $57.84

 $130,564.05

16

2257.27

 $1.80

 $4,061.97

 $134,684.44

 $1,500.00

2345.05

 $64.03

 $150,154.80

17

2345.05

 $1.84

 $4,304.32

 $154,516.12

 $1,500.00

2427.74

 $70.88

 $172,082.69

18

2427.74

 $1.87

 $4,545.22

 $176,683.34

 $1,500.00

2505.49

 $78.47

 $196,596.19

19

2505.49

 $1.91

 $4,784.60

 $201,434.52

 $1,500.00

2578.46

 $86.86

 $223,970.31

20

2578.46

 $1.95

 $5,022.42

 $229,044.68

 $1,500.00

2646.83

 $96.16

 $254,509.50

21

2646.83

 $1.99

 $5,258.71

 $259,818.30

 $1,500.00

2710.79

 $106.45

 $288,550.82

22

2710.79

 $2.03

 $5,493.52

 $294,092.52

 $1,500.00

2770.55

 $117.83

 $326,467.46

23

2770.55

 $2.07

 $5,726.91

 $332,240.64

 $1,500.00

2826.31

 $130.44

 $368,672.66

You’ll also notice you now have a portfolio worth $368,672.66 based on this historical performance! In the case of Peyto stock, I want to mention that this company has cut its dividend in the past. So, I wouldn’t exactly call it the safest and most secure investment for dividend passive income. That being said, it’s a great example to show how you can lock up long-term passive income for years.

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 has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Insights: The Average Benefit at Age 60 in 2024

The average CPP benefit at age 60 in average is low, but claiming early has many advantages with the right…

Read more »

thinking
Dividend Stocks

Why Did goeasy Stock Jump 6% This Week?

The spring budget came in from our federal government, and goeasy stock (TSX:GSY) investors were incredibly pleased by the results.

Read more »

woman analyze data
Dividend Stocks

My Top 5 Dividend Stocks for Passive-Income Investors to Buy in April 2024

These five TSX dividend stocks can help you create a passive stream of dividend income for life. Let's see why.

Read more »

investment research
Dividend Stocks

5 Easy Ways to Make Extra Money in Canada

These easy methods can help Canadians make money in 2024, and keep it growing throughout the years to come.

Read more »

Road sign warning of a risk ahead
Dividend Stocks

High Yield = High Risk? 3 TSX Stocks With 8.8%+ Dividends Explained

High yield equals high risk also applies to dividend investing and three TSX stocks offering generous dividends.

Read more »

Dial moving from 4G to 5G
Dividend Stocks

Is Telus a Buy?

Telus Inc (TSX:T) has a high dividend yield, but is it worth it on the whole?

Read more »

Senior couple at the lake having a picnic
Dividend Stocks

How to Maximize CPP Benefits at Age 70

CPP users who can wait to collect benefits have ways to retire with ample retirement income at age 70.

Read more »

Growing plant shoots on coins
Dividend Stocks

3 Reliable Dividend Stocks With Yields Above 5.9% That You Can Buy for Less Than $8,000 Right Now

With an 8% dividend yield, Enbridge is one of the stocks to buy to gain exposure to a very generous…

Read more »