Canadians seeking out passive income need to be careful. While dividend stocks are great, we’re about to enter a recession. This could lead to many dividend stocks cutting their dividends to create income needed to recover after a downturn.
That’s why today, I’m going to focus on safe passive income. If your focus is on creating that passive income for the near term and growth in the long term, then here is exactly what I would do.
First, how much will you invest?
You don’t want your investment to suddenly turn to ash, which is why I’m suggesting an amount around $5,000. That’s a large sum, but, again, we’re investing in a safe stock. So, it’s not going to drop down to nothing. That means you can take it out if need be in the near future, though, of course, investing for the long term is always best.
Now, if $5,000 doesn’t work for your budget, that’s fine! Instead, do what works for you and your savings. Just because I’m using this as an example doesn’t mean you have to. Instead, I’ll merely provide it as an example as to how much passive income you can make with that amount.
Where to invest
There are certainly safe industries across the market, and ones that should continue trading quite well. But if you’re looking at passive income, then you want something you can get for a deal. But it’s safe income, so you want to make sure that dividend stock will recover.
That’s why I would recommend the Big Six banks. These are all strong companies that have recovered over every recession. What’s more, they have provisions for loan losses, so they can rebound to pre-drop prices after hitting 52-week lows within a year’s time. That’s exactly what has happened time and again with Canadian Imperial Bank of Commerce (TSX:CM).
CIBC stock is down 29% in the last year alone, trading at 11.24 times earnings as of writing. It’s now not only a cheap stock in terms of fundamentals but also because of a stock split last year. This now makes it the cheapest by share price of the banks right now. So, let’s now look at how much passive income you can bring in.
Making that passive income
If you have $5,000 to invest, then now is a great time to put it to work. Shares will eventually head back towards 52-week highs for CIBC stock, so now is a great time to get in on a deal. CIBC stock holds a dividend yield 6% as of writing. So, here is what you can bring in now and how much you could turn that $5,000 into at 52-week highs.
|COMPANY||RECENT PRICE||NUMBER OF SHARES||DIVIDEND (ANNUAL)||TOTAL PAYOUT (ANNUAL)||FREQUENCY||TOTAL PORTFOLIO|
|CM – lows||$56.87||88||$3.40||$299.20||quarterly||$5,000|
|CM – highs||$71.89||88||$3.40||$299.20||quarterly||$6,326.32|
When shares return to 52-week highs, investors could have returns of $6,326.32 buying at today’s lows. Furthermore, they can bring in $299.20 annually in passive income!