Dividend stocks are trading at a record low, creating an opportunity to boost your passive-income portfolio by locking in higher yields. A 7.6% dividend yield is opportunistic as the market has pulled down the stock price. What if you could earn this yield for 11 years and even compound your returns?
How much passive income can a 7.6% dividend yield generate?
Compounding occurs when money makes more money. As you stay invested, money keeps multiplying. Let’s understand this with an example. Suppose you invest $3,000 now in a stock that gives you a 7.6% yield; you can get $228 in dividend income by the end of 2024. Going by the rule of compounding, you use this money to buy more shares with a 7.4% yield.
But here, I have added another element of regular investing. At the start of 2025, you invest $3,000 + $228 dividend and earn a 7.6% dividend on a total investment of $6,228 ($3,000 invested in 2024 and $3,228 in 2025). As you can see from the table below, if you reinvest the earned money, you make more money.
| Year | Annual Investment | Compounded Value | Dividend at 7.6% Yield |
| 2024 | $3,000 | $228.00 | |
| 2025 | $3,228 | $6,228 | $473.33 |
| 2026 | $3,473 | $9,701 | $737.30 |
| 2027 | $3,737 | $13,439 | $1,021.34 |
| 2028 | $4,021 | $17,460 | $1,326.96 |
| 2029 | $4,327 | $21,787 | $1,655.81 |
| 2030 | $4,656 | $26,443 | $2,009.65 |
| 2031 | $5,010 | $31,452 | $2,390.38 |
| 2032 | $5,390 | $36,843 | $2,800.05 |
| 2033 | $5,800 | $42,643 | $3,240.85 |
| 2034 | $6,241 | $48,884 | $3,715.16 |
At the end of 2034, while you only used $3,000 of your Tax-Free Savings Account (TFSA) contribution, the total annual investment was $6,241 ($3,241 came from compounded dividends).
If you decide to stop reinvesting and start withdrawing dividends, you can earn $309 ($3,715/12) in tax-free monthly passive income. However, most dividend stocks give quarterly payouts, so it depends on how much you withdraw.
A no-brainer dividend stock to buy any time
Let’s make this concept of compounding more interesting. It is impossible to lock in a 7.6% yield every year. A high dividend yield comes with the risk of a dividend cut. Dividend Aristocrats with robust payout track records have an average yield of 4-6%. In such a scenario, how can you ensure a higher yield?
Enbridge (TSX:ENB) is the solution to this question. This pipeline stock has been paying dividends for over 69 years without any dividend cuts. And it even grew its dividend per share 29 years in a row. Its average dividend-growth rate has slowed from 10% to 3%. Since 2013, the stock has been hovering around the average trading price range of $47-$55, with some outliers.
How much passive income can this dividend stock generate?
In this scenario, I invest $3,000 annually from the TFSA contribution room and reinvest the dividend income to buy Enbridge shares at $55. Assuming the company maintains its 3% dividend growth, your passive-income portfolio could grow in the following manner.
| Year | Invested Amount | ENB Share Count @$55/share | Total Share Count | ENB Dividend/ share (3% CAGR) | Total Dividend |
| 2024 | $3,000 | 55 | 54 | $3.66 | $197.64 |
| 2025 | $3,198 | 58 | 112 | $3.77 | $422.74 |
| 2026 | $3,423 | 62 | 174 | $3.88 | $677.06 |
| 2027 | $3,677 | 67 | 241 | $4.00 | $964.76 |
| 2028 | $3,965 | 72 | 313 | $4.12 | $1,290.65 |
| 2029 | $4,291 | 78 | 391 | $4.24 | $1,660.37 |
| 2030 | $4,660 | 85 | 476 | $4.37 | $2,080.49 |
| 2031 | $5,080 | 92 | 568 | $4.50 | $2,558.70 |
| 2032 | $5,559 | 101 | 669 | $4.64 | $3,104.05 |
| 2033 | $6,104 | 111 | 780 | $4.78 | $3,727.16 |
| 2034 | $6,727 | 122 | 903 | $4.92 | $4,440.60 |
For $55 a share, $3,000 can buy you 55 Enbridge shares. If Enbridge increases its dividend by 3%, it will pay a $3.66 dividend per share by the end of 2024 in four quarterly installments, earning you $197.6 in dividends. In 2025, your invested amount increases to $3,198, and you can buy 58 shares.
At the end of 2025, you’d have 112 shares and a dividend per share of $3.77. The combination of more shares and increasing dividends means more passive income. At the end of 2034, you could own 903 Enbridge shares that give $4,440 in passive income, or $370/month.
