One of the only things Canadians can be sure of right now is passive income when it comes to investing on the TSX today. Yet even that can be tricky, as you don’t want a company to suddenly slice their dividend in two. That’s why today, if you’re putting in an investment hoping to create $127 in cash each and every month, it needs to be safe.
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A safe option
Before I get into how much you would need to invest and for how long (don’t worry; we’ll get there), let’s first get into the stock. Today, I’m going to be recommending A&W Revenue Royalties Income Fund (TSX:AW.UN) as a safe option.
At first, you might be curious as to why I would consider a food chain operator a safe choice. But I assure you; at this point, it certainly is. A&W collects income from a variety of sources, including royalties. These are collected from its franchised locations on a regular basis, which is why it can afford to pump out a monthly dividend.
The stock invests in the company’s trademarks, where 845 of its 854 locations, as of writing, pay out these royalties. It then collects revenue from its locations as well as the trademarks used by its root beer at grocery locations.
The stock now offers a 5.23% dividend yield, again handed out monthly. Shares are down 6% in the last year, though up 62% in the last decade for a compound annual growth rate (CAGR) of 4.96%. Its dividend has grown at a CAGR of 3.36%.
How to make $127 per month
Why did I get into the CAGR there? You need to know this if you’re going to invest a little and get a lot in the next several years. Now, $127 per month comes to $1,524 per year. Let’s look at what you would need to invest right now to create that passive income.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND (ANNUAL) | TOTAL PAYOUT (ANNUAL) | PAYOUT FREQUENCY | TOTAL INVESTMENT |
| AW.UN | $36.40 | 788 | $1.92 | $1,512 | Monthly | $28,683.20 |
Is that doable? For some, sure. But if you only have about $5,000 to invest today, then let’s see now how long it would take for you to see $127 per month. To get there in a shorter period of time, I would then add $500 each year, reinvesting dividends as you go.
| Year | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Shares Owned | Year End Stock Price | New Balance |
|---|---|---|---|---|---|---|---|---|
| 1 | 137.00 | $1.92 | $262.80 | $5,256.05 | $500.00 | 157.13 | $38.21 | $6,003.39 |
| 2 | 157.13 | $1.98 | $311.56 | $6,322.47 | $500.00 | 177.56 | $40.10 | $7,120.23 |
| 3 | 177.56 | $2.05 | $363.88 | $7,492.76 | $500.00 | 198.29 | $42.09 | $8,345.93 |
| 4 | 198.29 | $2.12 | $420.02 | $8,775.77 | $500.00 | 219.34 | $44.18 | $9,689.73 |
| 5 | 219.34 | $2.19 | $480.22 | $10,181.01 | $500.00 | 240.72 | $46.37 | $11,161.62 |
| 6 | 240.72 | $2.26 | $544.73 | $11,718.70 | $500.00 | 262.44 | $48.67 | $12,772.31 |
| 7 | 262.44 | $2.34 | $613.84 | $13,399.85 | $500.00 | 284.51 | $51.08 | $14,533.36 |
| 8 | 284.51 | $2.42 | $687.82 | $15,236.30 | $500.00 | 306.95 | $53.62 | $16,457.16 |
| 9 | 306.95 | $2.50 | $767.00 | $17,240.75 | $500.00 | 329.76 | $56.28 | $18,557.03 |
| 10 | 329.76 | $2.58 | $851.68 | $19,426.86 | $500.00 | 352.95 | $59.07 | $20,847.29 |
| 11 | 352.95 | $2.67 | $942.21 | $21,809.26 | $500.00 | 376.53 | $62.00 | $23,343.28 |
| 12 | 376.53 | $2.76 | $1,038.93 | $24,403.68 | $500.00 | 400.51 | $65.07 | $26,061.50 |
| 13 | 400.51 | $2.85 | $1,142.23 | $27,226.96 | $500.00 | 424.89 | $68.30 | $29,019.61 |
| 14 | 424.89 | $2.95 | $1,252.49 | $30,297.18 | $500.00 | 449.69 | $71.69 | $32,236.55 |
| 15 | 449.69 | $3.05 | $1,370.13 | $33,633.69 | $500.00 | 474.90 | $75.24 | $35,732.62 |
Bottom line
As you can see, by investing just $5,000 now and adding $500 each year, it would take 15 years to reach your goal. Adding in the 475 shares, you would end up with a $3.20 dividend yield, providing you with an annual dividend of $1,524. That would bring your passive income to $127 each and every month.
