How Much Should You Invest to Earn +$400/Month in Passive Income?

If you are looking for some extra passive income to supplement your lifestyle, dividend stocks are starting to present attractive value. In fact, dividend stocks are hitting valuations and yields not seen since 2019 in some instances.

Dividend stocks look scary given their recent swift decline. Often, buying the most beat up sectors at peak pessimism can translate into outsized returns over the long term.

Buy the index or pick individual stocks for passive income

Today, it is very possible to earn an average of $400 per month of passive income (or $4,800 annualized). Right now, the average dividend yield on the S&P/TSX 60 Index is around 3.11%. If you just bought the index, you would need to invest $154,340 to earn an average of $400 per month.

Fortunately, you can do even better by picking individual stocks. In fact, with a hypothetical three-stock portfolio, you could invest only $90,000 (41% less cash than above) and earn around $440 per month. Here’s how it could work.

A top renewable stock with a big yield

Brookfield Renewable Partners (TSX:BEP.UN) is trading close to its lowest valuation in five years. The dividend yield of 6.2% is near its highest since 2019.

While the renewables sector has been taking a beating in 2023, Brookfield is by far one of the best of the bunch. The company has enviable hydropower assets that provide a power baseline which is impossible to replicate. This is complimented by a diverse portfolio of other renewable technologies.

The company has grown funds from operation (FFO) per unit by an average of 10% a year for the past decade. Given its massive growth pipeline, global scale, and development expertise, Brookfield should continue its steady growth trajectory.

Consider that $30,000 invested in BEP stock would earn $488.67 of passive income quarterly. That would equal an average of $162.89 per month.

A utility stock with a record of dividend growth

Another stock to put $30,000 into is Fortis (TSX:FTS). This is by far one of the most resilient dividend stocks in Canada. FTs has a 50-year history of consecutively increasing its dividend. It is unlikely that its dividend growth trajectory is going to unhinge, even if it may slow to an extent.

Fortis has very safe assets that are nearly 100% regulated. This means its income profile is predictable and stable. The stock is only growing by around 5-6% a year.

However, it is trading with an attractive valuation of only 16 times earnings. That is close to the bottom of its 10-year range. With a yield of 4.6%, a $30,000 investment in Fortis would earn $349 of quarterly passive income. That would average out to $116.43 per month.

A pipeline stock for steady passive income

If you want an elevated dividend yield, Pembina Pipeline (TSX:PPL) stock can deliver. Today, it yields 6.5%.

Pembina is one of Canada’s largest midstream and pipeline providers. With oil prices rising, it has two benefits. Firstly, higher energy prices mean more volumes are likely to flow through its network. Secondly, it earns a higher spread on reselling the energy it processes.

Pembina has one of the best balance sheets in the midstream/pipeline industry. Its dividend is covered by its largely contracted assets. If you put $30,000 into Pembina stock, you would earn $500.63 quarterly. That equates to $166.88 of average monthly passive income.