Do you want passive dividend income that comes into your brokerage account every month? If so, you’ve got your work cut out for you. Dividend income takes a while to really accumulate. Unless you already have several hundred thousand dollars saved, it will likely take you many years of saving to reach $1,000 in monthly dividend income. Currently, the TSX Composite Index has a weighted average yield of about 3%. If you’re investing at a 3% yield, you need $400,000 invested up front to get $12,000 per year in dividends (which averages out to $1,000 per month).
However, there are ways to increase your dividend income with less money invested. If you invest in a high-yield stock or a portfolio of high-yield stocks, you can get to $1,000 in monthly dividend income with much less than $400,000 invested.
In this article I will explore one TSX stock that pays monthly dividend income that can add significant amounts of passive income to your portfolio.
Keyera (TSX:KEY) is a Canadian energy company that is involved in natural gas processing and transportation. Its main claim to fame is its natural gas storage and transportation business. This business owns 17 underground storage facilities, and has a large condensate network. Its gathering and processing business has 12 active gas plants and 4,400 kilometres of pipeline capacity. Its marketing business is involved in selling products like propane, butane and iso-octane. Keyera transports 13,600 barrels of iso-octane per day.
Keyera has a significant amount of dividend potential. It pays a $0.16-per-share dividend each month. That works out to $1.92 per year. With that annual dividend, you need to buy 6,250 shares of Keyera in order to get to $12,000 per year, or $1,000 per month, in dividend income. KEY shares currently cost $31.90, so you can establish that $1,000 per month cash flow with just $199,000 invested!
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This isn’t to say that you should invest all of your money in KEY stock. As always, diversification is key: the Motley Fool generally recommends at least 25 stocks in your portfolio. You’ll need more than just some KEY stock in order to have a safe portfolio. However, this stock could be a good addition to a well-diversified portfolio, as I’ll show momentarily.
Overall quality as an investment
Going by its financials, KEY appears to be a pretty well-run company. In its most fiscal year, it delivered the following:
- $925 million in cash from operations, up 58%
- $818 million in funds from operations, up 6.7%
- $1.032 in adjusted earnings, up 8.8%
- $425.6 million in dividends
With $425.6 million in dividends declared, KEY has a mere 46% cash flow payout ratio. This suggests that KEY’s dividend is well covered and not at risk of being cut. Additionally, the growth in cash flows in 2022 was quite strong. This year, KEY’s earnings might decline somewhat, as the price of natural gas is going down. That’s a risk to be aware of, but commodity prices are pretty cyclical, and short-term trends don’t predict the long-term future.