How to Turn $25,000 Into $1,375 of Annual Dividend Income

Hold blue-chip TSX dividend stocks such as Enbridge to earn $1,375 in passive income with $25,000 in capital.

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Dividend stocks can help you earn a passive stream of income with a small amount of capital. As dividend payouts are not guaranteed, it’s essential to identify companies with steady cash flows and the ability to grow earnings over time, which should support consistent dividend raises.

So, if you have $25,000 to invest right now, these three blue-chip TSX stocks can help you earn $1,375 in annual dividend income.

Enbridge stock

An energy infrastructure giant, Enbridge (TSX:ENB), currently offers you a tasty dividend yield of 7.3%. Moreover, these payouts have risen by 10% annually in the last 28 years, showcasing the resiliency of the company’s cash flows.

Similar to other midstream players, Enbridge helps to transport oil and natural gas across North America and charges a fee from customers who want to use its assets. Its fees are tied to long-term contracts indexed to inflation, making Enbridge immune to fluctuations in oil prices.

Armed with an investment-grade balance sheet, ENB stock ended the first quarter (Q1) with a sustainable leverage ratio of 4.6 times. With a payout ratio of less than 70%, Enbridge has enough room to lower its balance sheet debt and reinvest in growth projects, driving future cash flows higher.

It has allocated $17 billion toward expansion projects that include natural gas, offshore windfarms, and pipeline expansions.

Bank of Montreal stock

Bank of Montreal (TSX:BMO) offers shareholders a dividend yield of 4.8%. Its diversified businesses enable BMO to deliver consistent and robust earnings growth. It holds a top-five market position in North America’s commercial banking segment. Moreover, BMO is growing its U.S. banking business, which is the world’s largest economy.

Due to the collapse of regional banks south of the border and higher interest rates, BMO has increased its total deposits from $657 billion in Q2 of fiscal 2021 to $875 billion in Q2 of fiscal 2023 (ended in April). With $1.25 trillion in total assets, BMO is the eighth-largest bank in North America.

Priced at 10 times forward earnings, BMO stock is really cheap and trades at a discount of 8% to consensus price target estimates.

Brookfield Infrastructure stock

The final dividend stock on my list is Brookfield Infrastructure (TSX:BIP.UN), which offers a yield of 4.3%. In the last 10 years, BIP stock has returned close to 400% in the last 10 years, after adjusting for dividends.

BIP owns and operates a wide portfolio of infrastructure assets allowing it to grow funds from operations by 11% annually in the past decade. This consistent expansion has enabled the company to grow cash distributions by 9% each year since 2013. Its inflation-backed rate increases should help BIP to increase its FFO by 10% in 2023.

BIP trades at 12 times forward earnings, which is exceptional for a growth stock. It also trades at a discount of 30% to consensus price target estimates.

The Foolish takeaway

Bank of Montreal$122.5468$1.47$100Quarterly
Brookfield Infrastructure $46.95177$0.5075$90Quarterly

A total investment of $25,000 distributed equally in these three TSX stocks should help you earn $1,375 in annual dividend income. If these companies increase dividends by 7% each year, your payouts should double to $2,750 over 10 years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Brookfield Infrastructure Partners and Enbridge. The Motley Fool has a disclosure policy.

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