Passive Income: How to Make $104 Per Month Tax Free in 20 Years

By simply choosing the right stock, and investing in it on a consistent basis, you can create massive passive income over the next 20 years!

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It has been a really difficult year or so for investors, and that’s leading many to either make hasty decisions, or none at all. Neither approach is a great option, as when it comes to investing slow and steady usually wins the race. Not making huge investments in the next growth stocks. Nor hoarding cash. Slow, steady, and safe investments.

That’s why today, I’m going to show you what can happen by investing a small amount in one passive income stock over the years. You don’t have to make a risky investment, just keep it consistent. This could create huge passive income that could all be tax free should you use your Tax-Free Savings Account (TFSA).

A stock to consider

Today, I’m going to look at monthly passive income producer Northland Power (TSX:NPI). This renewable energy company has been around for decades, diversifying the company into several areas of renewable energy. This includes hydro, offshore wind farms, and more.

Yet despite this diversification, a few short-term issues have been hurting the company. Inflation and interest rates increased costs for the company. Further, its east coast wind farms have had to be fixed as well. This has all meant more costs and less production, leading to a share price drop.

Shares are now down 24.5% in the last year, and 22% year to date. NPI now offers a 4.1% dividend yield, and trades at a valuable 10.7 times earnings. So it’s a great time to consider NPI stock while it’s down, but not out.

Generating passive income for the long term

If you’re going to create a large passive income stream over the long term, investors need to come up with an amount of cash they can put towards this stock year after year. That means not going overboard and stating you’re going to put thousands into the stock year after year. That’s just not doable for many Canadians. And could blow your contribution room for your TFSA.

Instead, consider setting aside $100 each paycheque. This would create $2,400 each year to put towards the stock, and that can certainly add up. So let’s look at by how much over the next several years.

Bottom line

To come up with an end point, let’s look at what the compound annual growth rate (CAGR) has been for Northland stock over the last decade. It’s seen a CAGR of 6.56%, and dividend CAGR of 1.06% in that time. Now, if you were to add $2,400 each year, let’s see what you could end up with. Furthermore, let’s consider that Northland stock recovers to 52-week highs.

YearShare PriceShares OwnedAnnual Dividend Per ShareAnnual DividendAfter DRIP ValueAnnual ContributionYear End Stock PriceNew Shares PurchasedYear End Shares OwnedNew Balance
1$29.1483$1.20$99.60$2,518.22$2,400$47.2152.95135.95$5,017.82
2$47.21135.95$1.21$164.87$6,582.63$2,400$50.3050.99186.94$9,147.61
3$50.30186.94$1.23$229.11$9,632.86$2,400$53.6049.05235.99$12,262.11
4$53.60235.99$1.24$292.29$12,942.17$2,400$57.1247.13283.12$15,634.23
5$57.12283.12$1.25$354.38$16,526.16$2,400$60.8745.25328.37$19,280.39
6$60.87328.37$1.33$437.98$20,424.86$2,400$64.8643.76372.13$23,263.12
7$64.86372.13$1.35$501.61$24,637.89$2,400$69.1141.98414.11$27,539.32
8$69.11414.11$1.36$564.11$29,185.16$2,400$73.6540.25454.36$32,149.52
9$73.65454.36$1.38$625.50$34,088.45$2,400$78.4838.55492.91$37,113.85
10$78.48492.91$1.39$685.77$39,369.28$2,400$83.6336.9529.81$42,455.16
11$83.63529.81$1.41$744.92$45,051.95$2,400$84.5137.21567.02$48,196.74
12$84.51567.02$1.42$805.69$48,727.16$2,400$90.0635.6602.62$51,933.25
13$90.06602.62$1.44$865.35$55,136.56$2,400$95.9734.03636.65$58,402.30
14$95.97636.65$1.45$923.91$62,021.05$2,400$102.2632.5669.15$65,344.57
15$102.26669.15$1.47$981.36$69,410.00$2,400$108.9731.03700.18$72,791.35
16$108.97700.18$1.48$1,037.76$77,336.66$2,400$116.1229.61729.79$80,774.94
17$116.12729.79$1.50$1,093.11$85,835.50$2,400$123.7428.23758.02$89,328.58
18$123.74758.02$1.51$1,147.43$94,942.00$2,400$131.8526.9784.92$98,488.85
19$131.85784.92$1.53$1,200.74$104,695.09$2,400$140.5025.63810.55$108,296.18
20$140.50810.55$1.55$1,253.09$115,137.76$2,400$149.7224.4834.95$118,790.93

After 20 years, investors could have a portfolio of $118,790! Plus, you’ll receive annual passive income at $1,253.09. That’s monthly income of $104!

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 Amy Legate-Wolfe 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.

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