Do you want to earn $1,000 per month in passive income in retirement?
It’s an ambitious goal, but it can be achieved.
With high yield dividend stocks, you can get $12,000 per year with a surprisingly small amount of money invested upfront. It may take you some time to save the required amount of money, particularly if you live on a meagre income. Still, it can be done. Consider that $12,000 annually translates to $1,000 per month, and with some stocks, the dividend is in fact paid monthly. In this article, I will explore how you can get to $1,000 per month in dividend income with monthly paying dividend stocks.
$200,000
Say, $200,000 is how much you have to invest in monthly pay dividend stocks yielding 6% to get $1,000 per month in dividend income. At 6%, a $200,000 investment pays out $12,000 per year. That works out to $1,000 per month. With quarterly pay dividend stocks, you get $3,000 per payment. With monthly pay dividend stocks, you get $1,000 each and every month. In the extreme long run, it doesn’t really matter whether your dividends are paid quarterly or monthly. There are some who even argue that it doesn’t matter whether a stock pays a dividend at all, as dividend payments reduce stock prices by the amount paid! Nevertheless, dividends are great for turning investments into cash without the hassle of manually buying and selling. And you only need to invest a few hundred thousand dollars to get to $1,000 per month in dividend income.
A stock that could make this really happen
If you want to earn $1,000 per month in dividend income with relatively little invested, you need to find an investment that has two characteristics:
- A high yield (let’s say 6%).
- A monthly payment schedule.
Stocks fitting this description can be hard to find. High yield stocks are out there, but if you’re looking for high yield and monthly payments, you’re narrowing down your list of eligible investments quite a bit.
Nevertheless, it is possible to find what you’re looking for. If you screen stocks for high yield, you can narrow your search down to a manageable level, and then find high yield stocks with monthly payment schedules.
First National Financial (TSX:FN) is one stock that fits the bill. First National is a non-bank lender. Its shares have an approximately 6% dividend yield. The dividends are paid out monthly. With $200,000 invested into FN stock, you should get about $1,000 per month in dividends – assuming the dividend does not change.
How is First National able to pay such a generous dividend? In truth, the dividend isn’t that generous in itself. FN’s stock price is just low. The stock reached a peak of $52.37 in 2021; it has fallen 25.5% since then. When a stock price falls precipitously, the stock often acquires a high dividend yield, even if the company’s payout ratio is not that high.
Is the dividend safe?
Is the dividend from First National financial safe?
I would argue that yes, it is.
A lot of people are worried about mortgage lenders right now because housing is expensive and interest rates are rising. These are valid concerns, but First National has an advantage. Since it isn’t a bank, it doesn’t take deposits. The financial services company simply finances its own loans by issuing bonds. This lets FN match the term to maturity of its financing to the term to maturity of its investments, minimizing liquidity issues.
First National seems to be having success with this approach. In its most recent quarter, it delivered:
- $141 billion in mortgages under administration, up 10%.
- $563 million in revenue, up 43%.
- $95.5 million in operating income, up 98%.
- $83.6 million in net income, up 109%.
Overall, it was an impressive showing. With a mere 46% payout ratio, FN is not paying out too high a percentage of its profits as dividends. So, the stock’s dividend is probably fairly safe.
