Dividend stocks are second to none and the favourite asset class of income investors. Established dividend payers can provide passive income or regular payouts for years if you don’t sell. The dividends can preserve purchasing power and help you cope with the rising cost of living.
Many wish to earn at least $1,000 monthly, a doable goal. In annual terms, what you’re looking for is $12,000 in dividends yearly. But how much should you invest to achieve the objective?
Required investment
Hundreds of thousands of dollars are required to generate $1,000 every month from dividend stocks. For regular investors who don’t have that much capital, be ready to invest time in accumulating stocks to reach the desired amount. However, the timeframe depends on the rate of return or dividend yield of your stock portfolio.
The shortest period is seven years, although it means investing $120,000 in a stock that pays a 10% dividend. Unfortunately, the higher the yield, the higher the risk. The following are realistic parameters and assumptions:
| Investment Amount | Dividend Yield |
| $300,000 | 4.0% |
| $280,000 | 5.0% |
| $200,000 | 6.0% |
| $171,428 | 7.0% |
Notice that the investment amount gets smaller while the period shortens as the dividend yield rises. Even if the power of compounding is at play through dividend reinvesting, it would take more than 10 years to accomplish the goal with the above assumptions. Still, it’s worth the time and effort because you will reap the rewards in the future.
Dividend King
Fortis (TSX:FTS) is best for risk-averse income investors. At $56.51 per share (+7.48% year to date), the dividend yield is 4.15%. Assuming the yield remains constant, you must accumulate $289,160 worth of shares over time to generate $1,000 monthly.
Fortunately, the top-tier utility stock is a dividend grower. It became Canada’s second and newest dividend king. This $27.6 billion electric and gas utility company earned the crown recently after achieving 50 consecutive years of dividend increases. The good part if you invest today is the dividend growth guidance of 4% to 6% through 2028.
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Fortis announced a capital expenditure of $25 billion for 2024 to 2028. According to management, the new five-year capital plan is low-risk and highly executable, involving almost 100% regulated investments and 18% for major capital projects. Also, it would increase the midyear rate base from $36.8 billion in 2023 to $49.4 billion by 2028.
Dividend Aristocrat
TC Energy (TSX:TRP) is an ideal complement to Fortis. The $49.7 billion energy infrastructure company is a dividend aristocrat owing to the dividend growth streak of 22 years. At $49.72 per share (-2.76% year-to-date), the dividend offer is 7.45%. As a standalone investment, a $161,075 position will produce $1,000 per month.
The latest buzz is that TC Energy wants to reduce debt and fund new investments. Published reports say the company plans to pursue a multibillion-dollar asset sale plan as part of an ongoing capital rotation program. There’s also a plan to spin-off the Liquids Pipeline business and establish a separate entity.
Patient investing
Earning $1,000 in monthly passive income is an ambitious goal because of the capital requirement. However, if you’re ready to engage in patient investing and accumulate shares of Fortis, you’ll eventually reach your destination.
