It’s a great question these days. Which is why today we’re going to look at how investors can make today’s market work for them, rather than against them. While the TSX today may be down, it’s a great time to get invested and work towards some long-term income. In fact, you could make enough to live off the passive income of your investments alone!
How much you’ll need
First off, let’s figure out how much exactly you’ll need to live off passive income. It’s a relatively simple item to figure out. Let’s say you live off of $60,000 per year from your income right now. That would mean in the future, you would need around that amount to be created through passive income each and every year.
Then, you’ll need to do some more math to figure out how much you’ll need in general. For instance, let’s say you’re 40 and plan on living another 40 years (at least!). That means you’ll need to create 40 years worth of passive income. Sure, you won’t need it all at once. But eventually, you’re going to need a grand total of $2.4 million to last you those 40 years.
Now that might seem impossible. But it’s not! All you need is a great Dividend Aristocrat that continues to raise its dividend year after year. What’s more, consider an undervalued one that has a strong future ahead.
Consider BCE stock
So let’s say you invest in a company such as BCE (TSX:BCE), which is an excellent long-term hold right now. The company has received some poor share results lately as it continues to contend with the Canadian Radio and Television Commission (CRTC), as well as mergers and acquisitions amongst its peers.
However, BCE stock isn’t likely to remain down for long, and especially not forever. It has well over 100 years of growth behind it, and over 40 on the market. It continues to offer the fastest internet speeds, as well as a strong and growing media company.
Yet it offers major value today. BCE stock is down 14% year to date as of writing, offering a whopping 7.5% dividend yield. So now, let’s look back at some history to see how to create that $2.4 million.
Growth to come
So again, you don’t need all that $2.4 million upfront. Instead, you simply need to make enough to live off of while still putting cash aside for investing. Let’s say then that you’re 30 years old and over the next decade want to create enough to put aside towards early retirement.
In the case of BCE stock, we’ll have to look at its compound annual growth rate (CAGR) for shares and dividends. In the last decade, shares have increased at a CAGR of just 1.3%. Dividends meanwhile offer a CAGR of 5.3%. So let’s see how much you would need to start investing to get yourself on the way to $2.4 million.
| Year | Share Price | Shares Owned | Share Value | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Stock Price | New Shares Purchased | Year End Shares Owned | New Balance |
| 1 | $51.00 | 1,961.00 | $100,011.00 | $2.08 | $4,078.88 | $104,089.88 | $15,000.00 | $51.66 | 369.00 | 2,330.00 | $120,367.80 |
| 2 | $51.66 | 2,330.00 | $120,367.80 | $2.19 | $5,103.26 | $125,471.06 | $15,000.00 | $52.33 | 384.00 | 2,714.00 | $142,023.62 |
| 3 | $52.33 | 2,714.00 | $142,023.62 | $2.31 | $6,259.36 | $148,282.98 | $15,000.00 | $53.01 | 401.00 | 3,115.00 | $165,126.15 |
| 4 | $53.01 | 3,115.00 | $165,126.15 | $2.43 | $7,564.96 | $172,691.11 | $15,000.00 | $53.70 | 420.00 | 3,535.00 | $189,829.50 |
| 5 | $53.70 | 3,535.00 | $189,829.50 | $2.56 | $9,039.95 | $198,869.45 | $15,000.00 | $54.40 | 442.00 | 3,977.00 | $216,348.80 |
| 6 | $54.40 | 3,977.00 | $216,348.80 | $2.69 | $10,709.29 | $227,058.09 | $15,000.00 | $55.11 | 467.00 | 4,444.00 | $244,908.84 |
| 7 | $55.11 | 4,444.00 | $244,908.84 | $2.84 | $12,601.08 | $257,509.92 | $15,000.00 | $55.83 | 494.00 | 4,938.00 | $275,688.54 |
| 8 | $55.83 | 4,938.00 | $275,688.54 | $2.99 | $14,743.92 | $290,432.46 | $15,000.00 | $56.56 | 526.00 | 5,464.00 | $309,043.84 |
| 9 | $56.56 | 5,464.00 | $309,043.84 | $3.14 | $17,179.12 | $326,222.96 | $15,000.00 | $57.30 | 562.00 | 6,026.00 | $345,289.80 |
| 10 | $57.30 | 6,026.00 | $345,289.80 | $3.31 | $19,950.23 | $365,240.03 | $15,000.00 | $58.04 | 602.00 | 6,628.00 | $384,689.12 |
| 11 | $58.04 | 6,628.00 | $384,689.12 | $3.50 | $23,198.00 | $407,887.12 | $15,000.00 | $58.79 | 650.00 | 7,278.00 | $427,873.62 |
As you can see, it’s going to take a big investment if you want to achieve this in a decade and be on your way. But if you have $100,000 and $15,000 to invest annually, you could achieve a $427,783.62 portfolio in a decade! What’s more, this is very conservative, as shares are due to rise far higher than just 1.3% per year.
