How Much Do You Need to Invest to Make $100/Month in Passive Income?

Thanks to higher interest rates last year, stock valuations have come down, and investors can now invest with less money (in nominal dollars) for the same amount of income. How much do you need to invest to make $100 per month in passive income today? Also, note that once you generate the first $100 a month, naturally, you will be able to make $200, $300, or even $3,000 a month eventually.

How much do you need to invest to make $100/month in passive income?

The dividend yield you lock in matters, but don’t chase high yields. Today, you can get a safe yield of approximately 6% from selective dividend stocks. To earn an extra $100/month (or $1,200 annually) in passive income from a 6% yield, you would need to invest $20,000.

For example, it’s a good idea to accumulate shares of big Canadian bank Canadian Imperial Bank of Commerce (TSX:CM), as it offers a juicy dividend yield of close to 6%. At the recent quotation of $56.73 per share, you would need to buy 353 shares to earn $1,200 of passive income a year.

The bank might just increase its dividend again soon. According to its schedule of increasing its dividend every half a year or so, it could raise its dividend later this month by 2-3%.

Notably, though, around recessions, the big Canadian bank stocks, including CIBC may be restricted by the regulator from raising their dividends and buying back their shares. Nonetheless, the big bank has a long track record of paying solid dividends with a 10-year dividend-growth rate of 6.1%.

If you have a long-term investment horizon, it’s plausible to approximate long-term total returns of about 12% from CIBC, assuming you lock in a 6% dividend yield today, and the bank is able to grow by about 6% per year, which also translates to similar dividend growth.

Moreover, the dividend stock actually trades at a discount of almost 20% from its long-term normal valuation. So, it’s more likely that it could deliver total returns along the lines of 14% over the next five years. If materialized, this would be an amazing return in a blue-chip retirement.

Investor takeaway

You can earn $100/month from a sustainable dividend yielding 6% with an investment of $20,000 today. Although $20,000 is a lot to invest for many Canadians, you’ve got to start somewhere. The earlier you start saving and investing, the better, because compound interest can help you grow your wealth. Additionally, you can grab buying opportunities when they come by such as now in CIBC for a compelling yield. Also, remember not to put all your eggs in one basket and diversify your portfolio.

The Rule of 72 approximates that you would be able to double your money every six years on a 12% rate of return. So, a $20,000 initial investment would turn into $40,000 and if it still earned a 6% dividend yield then, you’d be generating $200 instead of $100 a month in passive income!