How to Generate $500 in Passive Income Each Month

Canadian investors from all walks of life can benefit from generating an extra $500 in passive income every month. Here’s how.

| More on:
growing plant shoots on stacked coins

Image source: Getty Images

The Bank of Canada just raised the policy interest rate again this week — this time by 0.25%. Including the rate hikes last year, the central bank has increased the interest rate by 4.25% in this capital-tightening cycle.

That’s a lot to absorb for Canadians and Canadian businesses that have high debt levels, particularly those with variable interest rates. Thankfully, since the peak of 8.1% in June 2022, the inflation rate has been on a decline. So, the bank will hold off rate hikes for now.

Currently, the policy interest rate sits at 4.5%. Higher interest rates aren’t necessarily bad for Canadian investors. They provide opportunities to buy quality dividend stocks at lower valuations and juicier passive income. Canadians can use the passive income to help pay the bills.

Get passive income from this telecom

Big Canadian telecom TELUS (TSX:T) is a defensive dividend stock for passive income. It has a track record (almost 20 consecutive years) of dividend increases. For reference, its five-year dividend-growth rate is 6.6%.

At a glance, its last dividend hike of 3.7% appears low. However, investors should note that the company tends to increase its dividend semi-annually. So, it’d be much more telling to observe its trailing 12-month dividend increase of 6.7%, which aligns beautifully with its five-year growth rate.

Management also seems devoted to increasing its dividend by about 7-10% annually through 2025. Raising dividends is a good way to keep long-term shareholders, who are able to earn growing passive income that beat the long-term rate of inflation.

TELUS stock’s dividend yield is not excessively high in the current macro environment, which suggests it’s not a high-risk stock. Indeed, it does have a below-market beta and an investment-grade balance sheet.

At $28.55 per share at writing, TELUS stock trades more than 17% lower than its 52-week high. Analysts believe the stable dividend stock is undervalued by about 12%. Importantly, it yields 4.9%, paid out as quarterly dividends. Its payout ratio is estimated to be sustainable at about 58% of net income.

Earn more passive income from BNS stock

If you need more passive income with less investment dollars, big Canadian bank stock Bank of Nova Scotia (TSX:BNS) stock is a good choice. Its dividend yield of 5.8% is double that of the market’s yield of 2.9%.

The new chief executive officer Scott Thomson will come in starting next week. He would start a new era for the bank. The bank stock’s valuation is in his favour. So, he has a good chance of driving outsized total returns in BNS stock over the next three to five years.

At $71.20 per share at writing, the bank stock trades at about 8.5 times this year’s estimated earnings. This is a decent discount of approximately 25% from its long-term normal valuation. Its payout ratio is projected to be sustainable at roughly 50% of earnings this year.

How to generate $500 in passive income each month

The dividend stocks discussed pay out eligible dividends every quarter. This income is favourably taxed in non-registered accounts. Below, the dividend column displays the quarterly payouts. To generate passive income of $500 each month (or $6,000 per year) for each stock, here’s roughly how many shares you’d need to own.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDPAYOUTFREQUENCY
T$28.554,272$0.35$5004
BNS$71.201,456$1.03$5004

If you want to earn $3,000 in passive income per year from each stock above, divide the number of shares to buy by two.

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 Kay Ng has positions in Bank Of Nova Scotia and TELUS. The Motley Fool recommends Bank Of Nova Scotia and TELUS. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $10,000

Here’s how to build a diversified portfolio with dividend stocks that, as a group, pay out in every month of…

Read more »

A plant grows from coins.
Dividend Stocks

Invest $10,000 in 2 TSX Stocks for $606/Year in Passive Income

Shares of these two fundamentally strong companies can start a worry-free passive income stream.

Read more »

dividends grow over time
Dividend Stocks

2 Top Dividend Stocks That Keep Raising Their Payouts

In addition to their solid dividend growth track record, these top dividend stocks also offer strong growth potential for the…

Read more »

Canadian Dollars
Dividend Stocks

Buy 500 Shares of This Super Dividend Stock for $1,830/Year in Passive Income

This super dividend stock offers high yield and visibility over earnings growth. It can help you earn $1,830 in passive…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

1 Magnificent TSX Dividend Stock Down 13% to Buy and Hold Forever

This dividend stock is down 13% as of writing, marking a significant opportunity for those seeking out income and value…

Read more »

Increasing yield
Dividend Stocks

Passive Income: The Investment Needed to Yield $10,000 Per Annum

Here's the math on how much you would need to invest to achieve $10,000 a year in passive income.

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Got $3,000? 3 Dividend Stocks to Buy and Hold for the Long Term

These TSX dividend stocks look cheap today.

Read more »

Technology
Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks

The TSX is lucrative to buy these magnificent dividend stocks in bulk and be proud of this decision 10 years…

Read more »