For many investors, creating a source of passive income is the goal of their investment portfolios. Ultimately, the goal would be that the portfolio would be able to provide enough income such that the investor wouldn’t need to rely on their job in order to fund their day-to-day expenses. However, that’s a goal that many people may not see for years, if not decades. A more attainable goal in the medium term is to build a source of passive income that could bring you $5,000 annually.
In order to do that, investors will need to identify strong dividend companies that have a history of paying shareholders. It’s important that those companies also offer shareholders a strong dividend yield. Ideally, this would be about 4% or more. Generally, the higher the dividend yield, the less money you’ll have to put up in order to achieve larger amounts of passive income.
In this article, I’ll discuss two great dividend stocks that investors should consider holding today to generate $5,000 of passive income annually.
Start with this dividend payer
The first dividend stock that I think could net investors $5,000 on an annual basis is Bank of Nova Scotia (TSX:BNS). If you live in Canada, you should be very familiar with this company. It is one of the Big Five banks and holds a firm leadership position atop Canada’s banking industry. Bank of Nova Scotia is most notable among that group for its large international presence. Particularly, the company has established a strong presence in the Pacific Alliance, which is expected to grow at a fast rate over the coming years.
Bank of Nova Scotia has been paying shareholders a portion of its earnings since July 1, 1833. Since then, the company has never missed a dividend payment. That represents 190 years of continued dividend distributions. As of this writing, Bank of Nova Scotia offers investors a dividend yield of 7.19%. In my opinion, that’s a very attractive offer that investors should take advantage of.
With an annual dividend of $4.24 per share, investors will need to buy 1,180 shares of Bank of Nova Scotia stock to receive $5,000 of passive income on an annual basis. That equates to an investment of nearly $70,000.
One of Canada’s most prolific dividend companies
Investors should also consider buying shares of Fortis (TSX:FTS) if they hope to receive $5,000 in passive income annually. Fortis is a large multinational company which provides regulated gas and electric utilities to more than three million customers across North America. Because utilities tend to be paid on a recurring basis, Fortis can take advantage of that predictable and stable source of revenue and distribute a reliable dividend to shareholders.
Fortis currently offers investors a forward dividend yield of 4.20%. If you wanted to generate $5,000 in passive income annually, just via Fortis stock, you would need to hold 2,119 shares. That would equate to an investment of more than $118,000. Although that figure is much higher than what investors would need to invest in Bank of Nova Scotia, Fortis’s long history of raising its dividend should make the company very appealing to prospective investors.
|Price per Share
|Annual Dividend per Share
|Bank of Nova Scotia (TSX:BNS)