Do you want to give up working and just live off your investments and dividend income? Well, it won’t be easy, especially given the rising cost of living across Canada. However, it isn’t impossible either. That is especially true if you have decades to build an investment nest egg.
Living off dividend income will depend on many factors
So, how much would be needed to quit work and live off the dividend income? The answer largely depends on your age, where you live, your family, and your lifestyle expectations.
Do you own your home? Do you have debts or a mortgage you need to service? Do you have children or dependents? These are just a few questions that can drastically change how much investment income you would require to effectively retire.
Let’s just consider an average baseline. Say $70,000/year (or $5,833 per month) would suffice to meet the needs (and wants) of many Canadians. Most Canadian dividend stocks yield between 2% and 7%. If we targeted an average dividend yield of 4.5%, you would need at least $1.556 million to earn $70,000 per year.
Don’t have $1.556 million? Here’s how to get there
Most Canadians are not likely sitting on $1.556 million. However, say you only have $50,000 saved today. Put that into a mix of quality dividend stocks that earn a 4.5% yield today. Earn 3% average annual capital returns for a combined 7.5% average return (high but not impossible).
If you never sell and only re-invest your dividends, your $50,000 could be worth $900,000 given 40 years to compound. This doesn’t factor in any dividend growth over that time (which is certainly possible).
Where things really start to accelerate is if you regularly contribute to your investments. By contributing $200 per month to your dividend stock portfolio, you could compound your wealth to $1.46 million in 40 years. Up that to a $500 per month contribution, you could have $1.58 million in 35 years!
Start early, contribute regularly, and buy great dividend stocks
The key is to save and invest early and often. If you have decades to compound, it is possible to build a dividend investment portfolio that could sustain your lifestyle. Be disciplined, own stocks in high-quality businesses, think long term, and the returns can really add up.
One great TSX stock I would consider for a multi-decade hold for dividends is Brookfield Infrastructure Partners (TSX:BIP.UN). One trend I can’t see fading for decades (or ever) is the demand and need for more infrastructure. As society and populations advance, the world will need more assets like power lines, pipelines, ports, roads, railroads, data centres, and cell towers.
Brookfield is in the business of operating and consolidating high-quality infrastructure assets. In fact, it just announced a major acquisition of a leading container depot network.
This stock has delivered 13% average annual total returns over the past decade. For context, $10,000 invested in Brookfield Infrastructure would have become $34,300 today.
In that time, it has grown its dividend by over 8% per year. Today, this dividend stock yields 4.3%. It looks like a perfect candidate for anyone looking to build a long-term, passive-income portfolio to live from.
