Quitting work to live off dividend income is a dream many investors aspire to. While it is an admirable goal, it is not any easy goal to achieve. With elevated inflation and the high cost of living in many Canadian cities, the goal of earning independent income is harder to reach than even just a few years ago.
Yet, if you live frugally and save regularly, that goal is still achievable today. Owning a diverse portfolio of stocks is one of the best offsets to inflation you can have.
Now the question of how much cash you need really depends on a variety of personal factors. These could include:
- Standard of living
- Level of frugality
- Lifestyle
- Level of debt
- Region or city you live in
Work backwards to find how much cash you need
But let’s work backwards. The median after-tax annual income of a Canadian family is $68,000. Most Canadian dividend stocks earn a yield ranging between 3% and 7%.
If you could create a portfolio that averages a 5% dividend yield today, you would need at least $1,360,000 of capital to earn $68,000 per year. Now that is pre-tax dividend income. Fortunately, the Canadian dividend tax credit means dividends tend to be taxed at a lower rate than employment income.
An income of $68,000 is not living rich, but it is a decent income if you have limited debt, live frugally, and have a modest lifestyle. However, living off dividend income means you have the freedom and time to do what you want. If you don’t like being told what to do, building up an investment portfolio that pays the bills can be a great aspiration.
If you have accumulated savings and are looking to grow your passive income, two Canadian stocks you should consider owning are Brookfield Infrastructure Partners (TSX: BIP.UN) and Pembina Pipeline (TSX: PPL).
A diversified infrastructure stock for income and growth
Brookfield Infrastructure is a gem for both income and growth. It owns one of the largest diversified portfolios of economically essential assets around the globe.
Over 85% of these assets have long-term contracts that protect the dividend. Yet, the company has significant opportunities to not only acquire growth, but also to organically grow its current businesses.
Brookfield Infrastructure stock yields 4.3% today. It has grown its dividend by 8.3% annually since 2013. BIP’s dividend is more than three times its size when the stock was first listed in 2009. As the company grows its portfolio, that dividend is likely to keep growing.
An infrastructure stock with a big dividend
Pembina Pipeline stock doesn’t quite have the growth profile of Brookfield. However, it does pay a substantially larger dividend. Right now, this dividend stock yields 6.53%.
Pembina is one of the largest energy infrastructure companies in Canada. It has a variety of pipelines, gas processing, and midstream assets. Like Brookfield, over 85% of its assets are on long-term contracts. This provides a backstop for its dividends.
Pembina is exceptionally well-positioned as a supplier and potentially an exporter of LNG. It currently is in the planning stages of an LNG export terminal in British Columbia. That could be a good growth catalyst ahead.
Pembina has a strong balance sheet (especially compared to peers). Management has increased its dividend in each of the past two years. For a large dividend that is safe and sound, Pembina is a solid stock for someone looking to live off the income.
