For a Shot at $5,000 in Annual Passive Income, Buy 807 Shares of This TSX Stock

Are you looking to earn passive income from stocks? This table can get you started on determining how much, when, and where to invest.

| More on:
A golden egg in a nest

Image source: Getty Images.

The TSX has attractive stocks that give quarterly or monthly payouts through dividends and distributions if you are looking to earn passive income. These payouts are per share. If a $100 share gives you a $5 dividend/share annually, your dividend yield is 5%. To earn $5,000 in passive income, you will have to buy 1,000 shares of that stock.

While this calculation might look easy, it can put you at risk. The first rule of investing is diversification. Never put all your money in one stock because companies grow and dissolve. Business is dynamic, and you have to move with the times to keep your investments alive. 

While you still need 1,000 shares of companies that pay at least a 5% dividend yield, you can buy 200 or 300 shares of three to five companies. While selecting the companies, make sure each is from a different sector. Also, ensure you have a different reason to be bullish on each of them. 

How to select stocks for your dividend portfolio

If I were to build a passive income portfolio, I would invest in telecom, energy, real estate, banks, and utilities. These sectors are uncorrelated. For instance, energy and utilities are resilient to macro events and face no competition. Notably, the rates they charge consumers are regulated. Moreover, their profits are influenced by oil prices.  

Telecom enjoys the benefits of a utility without having the limitation of a regulated rate. But these companies do compete with other broadband providers. Whereas banks and real estate stocks are directly impacted by the macroeconomic environment. 

Building a portfolio for a legit shot at $5,000 in annual passive income 

To earn $5,000 in annual passive income, you need a mix of stocks that gives at least a 5% dividend yield. And if the stock grows its dividend annually, you could achieve your targeted passive income faster. 

BCE (TSX:BCE) is a large-cap telecom stock with a 6% dividend yield. The telco grows dividends at a compounded annual growth rate (CAGR) of 5%. To start earning $5,000 in annual passive income from next year onwards, you will need to buy 3,123 BCE shares, which will cost you over $200,000. 

But if you systematically invest $6,000 annually in BCE shares, you can accumulate $5,000 in annual passive income after 10 years. As the company grows its dividends by 5%, you will only need 807 shares to achieve your goal. Instead of investing $200,000 right now, you invest $60,000 over 10 years to get a $5,000 passive annual income. Here’s how. 

I assume BCE’s share price will grow by 3% every year. 

YearBCE share priceContributionNo. of shares purchasedTotal sharesDividend per shareDividend income
2023$65.0$6,000.092.00 $3.870$356.04
2033    $6.304$5,087.18
How to earn $5,000 in annual passive income with 807 BCE shares

How to build your passive income investment model 

The above table is an estimate, which could work if you buy BCE shares at the assumed stock prices and the telco keeps increasing its dividend by 5%. You can make a similar table for three to five passive income stocks and determine a portfolio mix depending on your return expectations. 

This table will help you plan your initial investment. But you have to keep altering the table to reflect the actual numbers. For instance, if one of your stocks halves its dividend, you can reduce the dividend amount to analyze the impact on your portfolio. Accordingly, you can invest in another stock and get back on track for a $5,000 passive income. 

If the stock price dips significantly, as it did during the March 2020 crash or October 2022 market downturn, you can buy more stocks and lock in a higher yield. The table will help you realize opportunities and grab them before it is too late. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s How to Boost Your Monthly Income

Parents, you have enough to worry about. But if you can put aside even $40 per month, that can create…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Looking for a Reliable Retirement Income? Consider These Dividend-Paying Stocks

Investors looking to establish a reliable retirement income have no shortage of options to choose from. Here's a trio of…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

3 Oversold Dividend Stocks That Could Make You Rich When They Bounce Bank

Don't wait around for these oversold dividend stocks to bounce back, each certainly will, which is why now is the…

Read more »

A small flower grows out of a concrete crack.
Dividend Stocks

Down 8% Last Month, Canadian Tire Stock Is a Deal Heading Into June 2023

May wasn't a good month for the stock, but June has been different from the beginning and may present an…

Read more »

Canadian Dollars
Dividend Stocks

Need Passive Income Right Now? Turn $20,000 Into $152 Every Month

This dividend stock may be down now, but offers substantial passive income through its 9.31% dividend yield as of writing!

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Is Exchange Income Stock a Buy?

Even within an industry, some stocks might be worth considering in certain market conditions, while others may be avoided.

Read more »

Dividend Stocks

2 Top Canadian Value Stocks in June 2023

Canadian Imperial Bank of Commerce (CIBC) stock is a compelling buy in June, and so is this Canadian REIT.

Read more »

Illustration of bull and bear
Dividend Stocks

2 Cyclical Stocks to Buy Before the Next Bull Market

The TSX index has been cyclical in the past 12 months, with neither a bearish nor a bullish trend fully…

Read more »