Want $5,000 in Passive Income Every Year? Here’s How Much You’d Have to Invest

Right now is a pretty good time to start looking for passive income. GICs (Guaranteed Investment Certificates) earn 4% or more. That is significantly higher than just a few years ago.

If you don’t mind locking your money up, this can be a good low-risk investment alternative. If you wanted to earn $5,000 per year, you’d need $125,000 to invest into an approximate 4% cashable short-term GIC today.

GICs have limited downside but no upside but interest income

GICs have limited downside risk, but they also don’t have any upside. Cashable GICs tend to have lower rates, and longer-term GICs are generally locked in until maturity.

However, stocks can have the risk of capital loss. However, they are liquid and can provide capital gains. Stocks can also provide a stream of growing dividends. As earnings/free cash flows grow, so too do the dividends of some of Canada’s best passive-income stocks.

While stocks have risks, that is the cost you pay for income and capital upside. A great way to offset this risk is to own a portfolio of at least 10-20 stocks in a diverse mix of sectors, geographies, and industries.

Below is a simple three-stock portfolio meant to demonstrate the type of yield and dividend growth you can earn from some of Canada’s top dividend stocks. Putting $35,000 into each of these stocks (for a total of $105,000) would earn an average of $5,323 of passive income annually.

A diversified infrastructure passive-income play

Brookfield Infrastructure Partners (TSX:BIP.UN) is a great stock to own for diversity, income, and even growth. The company operates a portfolio of economically essential assets in the energy, transport, utility, and data industries. Its assets are spread around the globe, so its business is not subject to any government or economy.

Brookfield has been high-grading its portfolio in recent years. It has been positioning for transformational trends like near-shoring/friend-shoring, the global data revolution, and growing demand for energy.

This stock yields 4.77% today. $35,000 invested in Brookfield Infrastructure would yield $420.21 quarterly, or $1,680.84 annually. The company has a track record of growing its distribution by the mid- to high single digits annually, so there is some good passive-income upside ahead.

A beaten-down telecom stock for passive income

TELUS (TSX:T) is another stock to consider for a passive-income portfolio. Recently, TELUS stock has not performed well. Factors like rising interest expenses, increasing competition, and weakening performance at its digital customer service subsidiary have caused the stock to fall.

Today, it is trading with a 6.4% dividend yield. That is the highest TELUS’s yield has been in more than 10 years. Certainly, TELUS has some near-term challenges. However, its management remains confident that it will see free cash flows significantly accelerate as its capital-spending cycle declines in 2024 and beyond.

$35,000 invested in TELUS stock would yield $555.35 per quarter. That equals $2,221.40 of passive income annually. TELUS also has a great track record of annually increasing its dividend by the high single digits.

An energy stock with decades of dividend growth

With a 4% dividend yield, Canadian Natural Resources (TSX:CNQ) may not pay the highest yield. Yet, it has one of the most attractive dividend-growth track records in Canada. For more than 20 years, it has grown its dividend by a +20% compounded annual growth rate.

Canadian Natural is one of the best-managed energy producers in Canada. It has several decades of reserves that it can unlock at only incremental cost. With oil prices potentially heading higher, this stock is set to yield substantial excess cash flows. That only means more dividend growth and even potential special dividends ahead.

Today, a $35,000 investment in CNQ stock would earn $355.50 of passive income quarterly, or $1,422 annually.