Do you want to own investments that pay you passive income every single month?
It’s quite easy to get started, though getting a lot of passive income is pretty hard. In a recent series of articles, I showed how I was getting $1,701 per year in passive income from dividends and interest. That’s not a ton of money, and the portfolio I’m getting it from is worth about $92,000. If you only invest in dividend stocks, you can get a higher portfolio yield than I’m getting, although such a strategy means you miss opportunities in stocks that don’t pay dividends.
Nevertheless, it is worth exploring how much passive income a person could get if they went with all high-yield stocks. Some people have succeeded with the “high-yield” strategy. For example, the legendary bond investor Howard Marks achieved a 20% annualized career return mainly by buying high yield debt. So, clearly, there is money in high-yield investments.
In this article, I’ll explore how much money you need to invest in order to get $800 in passive income each and every month.
$147,000
In my opinion, you need to invest at least $147,000 to get $800 in monthly passive income. If you invest $147,000 in Enbridge (TSX: ENB) stock, you’ll get $9,600 per year in dividend income, which averages out to $800 per month. If you want to get exactly $800 per month, on a literal monthly schedule, you could consider Pembina Pipeline, which has almost as high a yield as Enbridge, though is not as economically vital to North America’s energy industry. I’ll continue using ENB as the main example in this article, because I consider it a better company than Pembina overall.
Why that’s a reasonable amount to invest
$147,000 is a reasonable amount to invest in dividend stocks to get $800 a month in dividend income, because it doesn’t require an unreasonably high yield. Invest $147,000 in dividend stocks at a 6.5% yield, and you’ll get your $9,600 per year, or $800 per month.
I don’t think it’s wise to seek out yields much higher than 6.5%, which is what Enbridge offers. Enbridge is able to cover its dividend payout with distributable cash flow (i.e., cash left over after paying all cash expenses). When you start looking at stocks with 8% or 10% dividend yields, you risk buying into companies that don’t make enough money to pay their dividends. We saw that happen to people who bought Algonquin Power & Utilities at the wrong time, so watch out.
What to do if you don’t have a lot saved
If you think needing $147,000 to get to $800 in monthly passive income is a depressing prospect, don’t worry. The beauty of investing is that you don’t need to invest all at once. If you buy dividend stocks like ENB progressively over a long period of time, you may get to a $147,000 portfolio eventually. In fact, you could get a portfolio much larger than that! With investing, the sky is the limit. So, save diligently and keep going after your goals.
