If you’re into dividend investing, you probably have some sort of monthly income goal. Maybe you want to reach $10,000 per month and retire early. Or maybe you just hope to get your first $5 a month, so you can get started. Whatever your goal is, you need a plan to get there.
A realistic medium-term dividend goal to set for yourself is $2,000 per year, which works out to a little under $170 per month. If you make $60,000 per year in income you should be able to get to $40,800 in savings, which pays $2,040 per year, or $170 per month, invested at a 5% yield. In this article, I will explore how you can achieve that much dividend income in just four years of saving.
The math on dividend income
When it comes to dividend income, there are two fundamental things you need to know:
- How much money you can save
- How high the yield is on your investment
As mentioned, it takes a little over $40,000 in savings to get to $170 per month in dividend income. You can do this in four years if you earn $60,000 per year. Here’s the math on that:
- In most provinces, you’ll pay up to 33% in taxes on $60,000 (that is $20,000). This reduces your take-home amount to $40,000.
- If you split $2,000 in rent with a roommate or a partner, paying $1,000, you’re spending $12,000 annually on rent. This takes your remainder down to $28,000.
- If you spend $1,000 per month on a car payment plus gas combined, that’s another $12,000, taking you down to $16,000 remaining.
- If you spend $500 per month on groceries, that’s $6,000 in a year, taking your remainder down to $10,000.
So, if you have pretty typical expenses, you can save $10,000 per year on a $60,000 per year salary.
Now, how do we turn that $10,000 per year into a $170-per-month income stream?
Well, in 4.1 years, the cumulative savings will be about $41,000. If you invested $40,800 at a 5% portfolio yield, you get $2,040 per year, or $170 per month, in dividend income. Below, you will see a chart that shows how you can get to $2,040 per year by investing in dividend stocks!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND (ANNUAL) | TOTAL PAYOUT (ANNUAL) | FREQUENCY |
| Bank of Nova Scotia (TSX:BNS) | $63.94 | 481 | $4.24 | $2,039.44 | Quarterly |
Some examples of high-yield stocks
Having established that a 5% yield could get you $170 per month in dividend income, it’s time to look at some stocks with yields of 5% or higher.
Bank of Nova Scotia, better known as Scotiabank, is a Canadian bank stock with a 6.4% yield. With that yield, you can get to $170 per month in dividend income with less than $40,800 invested. In fact, it would take only $31,875 to get to $170 per month in dividend income at a 6.4% yield.
Is the Bank of Nova Scotia a good stock overall?
The dividend appears to be safe and well covered. BNS has a 61% payout ratio, meaning that it pays out 61% of its profit in the form of dividends. This suggests that the dividend is fairly safe and can continue being paid.
As for the company overall: it’s fairly profitable, with a 30% profit margin. However, its growth has been slower than other Canadian banks over the last five years, growing its revenue at just 2.3% per year. Overall, it’s a so-so stock.
Another high yield stock is Enbridge. This stock has an even higher yield than Bank of Nova Scotia — a full 7.24%! Unlike BNS, the company has a decent track record of earnings growth over the last five years, although it has a much higher payout ratio than BNS does. Probably not a stock to “go all in on,” but one that might merit a place in a diversified portfolio.
