Do you want $6,000 in dividend income?
If so, you’ll have to invest a significant amount of money.
If you invest at the market yield (for Canadian stocks, that’s about 3%), you’ll need to invest a full $200,000 to get $6,000 back in annual passive income. Many Canadians do have $200,000, but if you’re new to investing or very young, you likely don’t.
Over time, you could save $200,000 and get your $6,000 passive-income stream going by investing in index funds. That’s certainly one way to do it. However, if you’re willing to take a little risk, you can do it with much less than $200,000. If your portfolio yield is 6.6%, it only takes $90,909 invested to get $6,000 in annual dividend income.
In this article, I will explore three dividend stocks that can take you to that income level.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS), known better as Scotiabank, is a Canadian bank with a 6.6% dividend yield. At a 6.6% yield, you only need to invest $90,909 to get to $6,000 in annual dividend income, as the table below shows.
|COMPANY||RECENT PRICE||NUMBER OF SHARES||DIVIDEND||TOTAL PAYOUT||FREQUENCY|
Is Bank of Nova Scotia a good stock, apart from its notably high yield?
Arguably, it is a pretty good one. The company has a very high 29.3% profit margin, and the stock has an 8.21 price-to-earnings ratio. So, you’re not paying much for what you get with BNS stock. The downside is that the company isn’t growing much. Over the last five years, Scotiabank’s revenue has grown at 2.3% per year, and its earnings per share have declined slightly. Not the best growth track record. However, the bank’s payout ratio is only 50%, so you can at least count on that juicy 6.6% yielding dividend coming in consistently.
Enbridge (TSX:ENB) is a pipeline stock with a 7.3% dividend yield. You can get to $6,000 in annual dividend income with this stock much more quickly than you can with Bank of Nova Scotia. It takes only $82,191 invested in ENB to get a $6,000 cash flow stream going!
Is Enbridge a good stock overall?
It has some good and bad things about it. On a positive note, its revenue and earnings have grown fairly consistently over the last 20 years. Also, it’s a pipeline, so it makes money off oil companies without dealing with the volatility of selling oil directly.
On a less-positive note, Enbridge has a very high payout ratio. Its earnings and free cash flow payout ratios are both above 100%. So, ENB pays more in dividends than it earns in profit. This can be a warning sign, so be careful.
Kinder Morgan (NYSE:KMI) is another pipeline stock like Enbridge. It has a 6.6% dividend yield, which is the same as that of Scotiabank.
Kinder Morgan, like Enbridge, is in the business of transporting oil. It makes money by charging fees to companies that want to use its infrastructure. This is a pretty resilient business model that isn’t affected too much by the up-and-down swings of the oil market. KMI’s earnings did decline slightly in the most recent quarter, but the long-term track record is one of growth. Also, the company has a lower payout ratio than Enbridge.