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.
| Year | Share Price | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Stock Price | New Shares Purchased | Year End Shares Owned | New Balance |
| 1 | $29.14 | 83 | $1.20 | $99.60 | $2,518.22 | $2,400 | $47.21 | 52.95 | 135.95 | $5,017.82 |
| 2 | $47.21 | 135.95 | $1.21 | $164.87 | $6,582.63 | $2,400 | $50.30 | 50.99 | 186.94 | $9,147.61 |
| 3 | $50.30 | 186.94 | $1.23 | $229.11 | $9,632.86 | $2,400 | $53.60 | 49.05 | 235.99 | $12,262.11 |
| 4 | $53.60 | 235.99 | $1.24 | $292.29 | $12,942.17 | $2,400 | $57.12 | 47.13 | 283.12 | $15,634.23 |
| 5 | $57.12 | 283.12 | $1.25 | $354.38 | $16,526.16 | $2,400 | $60.87 | 45.25 | 328.37 | $19,280.39 |
| 6 | $60.87 | 328.37 | $1.33 | $437.98 | $20,424.86 | $2,400 | $64.86 | 43.76 | 372.13 | $23,263.12 |
| 7 | $64.86 | 372.13 | $1.35 | $501.61 | $24,637.89 | $2,400 | $69.11 | 41.98 | 414.11 | $27,539.32 |
| 8 | $69.11 | 414.11 | $1.36 | $564.11 | $29,185.16 | $2,400 | $73.65 | 40.25 | 454.36 | $32,149.52 |
| 9 | $73.65 | 454.36 | $1.38 | $625.50 | $34,088.45 | $2,400 | $78.48 | 38.55 | 492.91 | $37,113.85 |
| 10 | $78.48 | 492.91 | $1.39 | $685.77 | $39,369.28 | $2,400 | $83.63 | 36.9 | 529.81 | $42,455.16 |
| 11 | $83.63 | 529.81 | $1.41 | $744.92 | $45,051.95 | $2,400 | $84.51 | 37.21 | 567.02 | $48,196.74 |
| 12 | $84.51 | 567.02 | $1.42 | $805.69 | $48,727.16 | $2,400 | $90.06 | 35.6 | 602.62 | $51,933.25 |
| 13 | $90.06 | 602.62 | $1.44 | $865.35 | $55,136.56 | $2,400 | $95.97 | 34.03 | 636.65 | $58,402.30 |
| 14 | $95.97 | 636.65 | $1.45 | $923.91 | $62,021.05 | $2,400 | $102.26 | 32.5 | 669.15 | $65,344.57 |
| 15 | $102.26 | 669.15 | $1.47 | $981.36 | $69,410.00 | $2,400 | $108.97 | 31.03 | 700.18 | $72,791.35 |
| 16 | $108.97 | 700.18 | $1.48 | $1,037.76 | $77,336.66 | $2,400 | $116.12 | 29.61 | 729.79 | $80,774.94 |
| 17 | $116.12 | 729.79 | $1.50 | $1,093.11 | $85,835.50 | $2,400 | $123.74 | 28.23 | 758.02 | $89,328.58 |
| 18 | $123.74 | 758.02 | $1.51 | $1,147.43 | $94,942.00 | $2,400 | $131.85 | 26.9 | 784.92 | $98,488.85 |
| 19 | $131.85 | 784.92 | $1.53 | $1,200.74 | $104,695.09 | $2,400 | $140.50 | 25.63 | 810.55 | $108,296.18 |
| 20 | $140.50 | 810.55 | $1.55 | $1,253.09 | $115,137.76 | $2,400 | $149.72 | 24.4 | 834.95 | $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!
