Buy 568 Shares in This Top Dividend Stock for $210 Per Month in Passive Income

If you haven’t yet started building multiple sources of income, it’s a good time to start with this dividend stock, which trades near its low.

Puja Tayal

Author Bio

Puja Tayal grew up in a small-business family where dinner conversations often centred on working capital and savings. Her early experiences with investing, particularly during the 2008 financial crisis, shaped her approach to understanding markets and evaluating investment opportunities. She began her career at a mutual fund company before moving into investor education and financial writing for asset and wealth management firms. Before joining The Motley Fool, Puja wrote for Market Realist, where she extensively covered the semiconductor industry. Her published work has also appeared in The Indian Express. Puja believes every stock has a story that can help investors understand its potential returns. She combines business analysis with different investing approaches to help investors make informed decisions and align their portfolios with their long-term financial goals. Outside of finance, Puja enjoys long drives, catching up with friends, watching superhero and science-fiction movies, and managing her family portfolio. She also has a keen interest in artificial intelligence and its potential to reshape the world.

Education

Bachelor's degree in Accounting and Finance, University of Mumbai (2007)
CFA Level I

Areas of Expertise

Qualitative company analysis, management strategy, risk assessment, long-term investing, portfolio diversification and rebalancing, dividend reinvestment, cyclical growth opportunities, compounding strategies, growth stocks, and dividend stocks.

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Favorite Investment Quote

"Risk comes from not knowing what you're doing." — Warren Buffett

Published July 2, 2023 10:00 am EDT

Gone are the days when you could retire with a single source of income. At the rate at which technology is evolving, you need multiple income sources. Rather than retiring only on your Canada Pension Plan (CPP), build passive-income sources. While you work for money today, let the money work for you tomorrow.

How to use dividend stocks to earn passive income

Dividend stocks are range bound, as their stock price is adjusted for the dividend paid. You can use this feature to your advantage by buying dividend stocks from time to time when they trade closer to their lower range. This way, you can reduce your downside risk and lock in a higher dividend yield. (Dividend yield is the annual dividend amount as a percentage of the share price. When the share price falls, the yield rises.)

As dividend stocks don’t give growth by increasing stock prices, it makes investment sense to reinvest dividends to buy more income-generating shares.

The top dividend stock to earn passive income

TC Energy (TSX: TRP) has been paying a dividend since 2000 and growing it at a 7% compounded annual growth rate (CAGR). Last year, it started a dividend-reinvestment plan (DRIP). While TC still faces hiccups now and then with pipeline development, it is gradually getting to safer cash flows.

The company has been transitioning from oil pipelines to natural gas pipelines and has several gas pipeline projects ongoing. The management’s 2023 priorities are to divest US$5 billion worth of assets and use the proceeds to reduce debt. The company is laying off staff to enhance operating efficiency.

TC funds a significant portion of its projects with its operating cash flow and aims to grow its distributable cash flow (DCF) by 3-5%. The DCF is the amount TransCanada has left after servicing debt and capital spending. Its 23-year dividend-growth consistency assures investors of a stable source of passive income.

Its dividend growth has slowed to 3%, as it is investing aggressively in natural gas pipelines to tap North America’s liquefied natural gas export opportunity. I expect the company to accelerate its dividend growth in the next three years, as these pipelines come online.

How to earn $210/month in passive income from this dividend stock

TC stock hovers in the range of $50-$70. I did some calculations to determine how many TRP shares can earn you $210 in monthly passive income. Remember, the stock pays dividends quarterly, but you can control your withdrawals.

Year	Average TRP Stock Price	Annual Investment	TRP Shares Purchased	Total Share Count	TRP Dividend per share (3% CAGR)	Total dividend
2023	$60.00	$4,000.00	67		$3.72
2024	$60.00	$4,000.00	67	134	$3.83	$512.16
2025	$60.00	$4,000.00	75	209	$3.95	$823.51
2026	$60.00	$4,000.00	80	289	$4.06	$1,173.41
2027	$60.00	$4,000.00	86	375	$4.19	$1,568.69
2028	$60.00	$4,000.00	93	468	$4.31	$2,016.81
2029	$60.00	$4,000.00	100	568	$4.44	$2,521.50
2030	$60.00		42	610	$4.58	$2,789.30
2031	$60.00		46	656	$4.71	$3,089.75
2032	$60.00		51	707	$4.85	$3,429.99

How to earn $210/month in passive income from TC Energy.

If you buy TRP shares at an average price of $60, around $4,000 investment can buy you 67 TRP shares in 2023. Since half the year is gone, I have excluded any dividend income for 2023. If the stock maintains its 3% dividend compound annual growth rate, its dividend per share would be $3.83 in 2024, and 134 shares (67 shares from 2023 + 67 shares from 2024) could pay you $512 in annual dividends.

If you opted for the DRIP, you would get eight TRP shares instead of cash. If compounded for seven years, your DRIP plus $4,000 annual investment will buy you 568 TRP shares that pay $2,521.5/year, or $210/month in passive income. Without DRIP, you would have 469 TRP shares that pay $173.5 monthly passive income.

Compounding added 99 TRP shares and $36.5 in monthly passive income. If you stop investing $4,000 and let your money compound, you would own 707 TRP shares by 2032 that pay $285.8/month in passive income.