Do you want to achieve passive income with dividend stocks? If you do, then it pays to look at stocks with long track records of dividend stability. Many stocks have high yields, meaning that they pay you a lot of passive income if things go well. The problem is that with very high yield stocks, things often don’t go well. High yield tends to indicate high risk. If a stock has a high yield, it’s either because the price has been beaten down, or the dividend payout ratio is high. A high payout ratio is a bad thing. A beaten-down stock may be a bad thing if investors are right in their reasons for selling.
Nevertheless, there are some high yield stocks out there that are decent investments. In industries like real estate and pipelines, high yields are the norm – even for high quality assets. In this article, I will explore one high yield stock that could pay you $6,790 in passive income if you buy 1,908 shares.
Enbridge
Enbridge Inc (TSX:ENB) is a Canadian pipeline stock that has a 6.79% dividend yield. The stock pays $0.89 in dividends per quarter, or $3.56 per year. To get $6,790 in dividends per year from Enbridge, you need to buy 1,908 shares.
As you can see, Enbridge’s dividend potential is significant. Its 6.79% yield lets you get substantial income from it even if your initial amount invested isn’t that much. But is the stock a good buy on the whole?
Based on Enbridge’s industry position, it would seem that it is. ENB is one of the biggest pipelines in North America. It has only a small handful of competitors. There are some locations that only Enbridge can ship oil to, so it enjoys even less competition in specific regions than it does overall. Also, Enbridge supplies 75% of Ontario’s natural gas, so it has majority market share in that province.
One thing about Enbridge that isn’t so bullish is its financial strength. It pays out more in dividends than it generates in free cash flow, and it has more debt than it has equity. These things aren’t so pleasant to think about, but the payout ratio isn’t so high that the dividend is at risk of being cut tomorrow.
How much 1,908 shares will cost you
If you like Enbridge as a business and want to use its shares to generate passive income, how much will it cost you?
Here’s the part where a little reality check is in order:
At today’s prices, it will cost about $100,000 to get your 1,908 Enbridge shares. That’s much cheaper than the price you’d pay to get $6,790 per year from passive index funds, but it’s still quite a bit of money to save up.
Foolish takeaway
So, there you have it. It costs $100,000 to get your 1,908 shares of Enbridge and earn $6,790 per year in passive income. You’ll have to save quite a bit of money to pull it off, but it can be done. Of course, you should never invest all of your money into a single high yield stock like ENB. The Motley Fool generally recommends a minimum of 25 stocks in a portfolio. If you build a 25-stock portfolio of high-yielders, including Enbridge, you may be able to get results like those described in this article.
