How much do you have to invest to get $500 in dividends each and every month?
It all depends on your portfolio’s dividend yield. With a 10% yield and monthly payout schedule, you can get to $500 a month with only $60,000 invested. That is, $6,000 per year paid on a monthly basis. Unfortunately, most stocks don’t have yields anywhere near 10%. Many do have high enough yields to get you to $500 a month with diligent savings, but don’t pay monthly. In this article, I will explore two methods for getting to $500 per month in dividend income: the slow way and the fast way.
The safe but slow way
The safest way to get to $500 per month in dividend income is to simply invest in dividend-paying index funds. Such funds are among the least risky equity investments you can buy, as they are very diversified and have low fees. The flip side is that their yields are typically quite low, so you need to save lots of money in order to make $500 per month off them.
Consider the IShares S&P/TSX Composite Index Fund (TSX: XIC), for example. It’s a broad market index fund based on the TSX Composite Index – the index of Canadian stocks trading on the Toronto Stock Exchange. It has 240 stocks, which provides plenty of diversification and low risk. Also, it has only a 0.06% MER, which means that if you invest in the fund, you won’t lose too much to management fees. It is, on the whole, a compelling package. The downside is that XIC only has a 3% dividend yield, so you need to invest a whole $200,000 before you can get to $6,000 a year in dividend income.
The risky but fast way
As we’ve seen, it takes a decent-sized chunk of change to get to $500 per month in passive income with index funds. That’s just the price you’ll have to pay if you want to achieve substantial dividend income safely.
If you’re willing to assume a little more risk, you could consider high yield stocks like First National Financial (TSX: FN). First National Financial is a non-bank lender whose shares yield 6.5%. With a 6.5% yield, you only need to invest about $92,500 in order to get to $500 per month in dividend income. Best of all, FN is a monthly pay dividend stock, meaning you do in fact get that $500 each and every month. With the previous example, the XIC ETF, I said you could get a sum each year that averages out to $500 per month. Here, I’m talking about an actual $500 monthly cashflow.
How safe is First National Financial’s dividend? Going by the payout ratio, it appears pretty safe. The company pays out just 58% of its earnings as dividends, which is acceptable. Also, the company is performing well this year. In its most recent quarter, it delivered:
- $142 billion in mortgages under administration, up 10%.
- $563 million in revenue, up 43%.
- $83.6 million in net income, up 108%.
All in all, it was a very strong showing. First National appears to be doing well enough to justify its 6.5% dividend yield.
