How Much to Invest to Get $500 in Dividends Each Month

Dividend investing remains a popular strategy on Bay Street, as it allows shareholders to create a passive-income stream and benefit from long-term capital gains. Historically, dividend stocks have outpaced the broader markets, as these companies generally generate stable cash flows across market cycles, enabling them to maintain dividend payouts in good times and bad.

Further, the best dividend stocks are companies that raise their payouts each year, enhancing your effective yield in the process. While there are several dividend stocks trading on the TSX, just a handful of them are viable bets for 2023 and beyond.

Let’s see how you can earn $6,000 a year in dividend income, which translates to a monthly payout of $500.

Invest in blue-chip dividend giants

It’s essential to create a diversified portfolio of blue-chip stocks that lowers your risk profile while allowing you to earn regular dividend income. Some of the largest TSX stocks offer shareholders a tasty yield. Due to their wide competitive moat and pricing power, Canadian blue-chip stocks have raised dividend payouts at a consistent pace over time.

For instance, Enbridge (TSX:ENB) is part of the cyclical energy sector. However, the majority of Enbridge’s cash flows are tied to long-term contracts, which are indexed to inflation, making it immune to fluctuations in commodity prices.

Its widening base of cash-generating assets has allowed Enbridge to raise dividends by 10% annually in the last 28 years, which is quite exceptional. Priced at 16 times forward earnings, ENB stock currently yields 7.6%.

Another TSX giant is the Bank of Nova Scotia (TSX:BNS), which offers shareholders a forward yield of 6.7%. BNS and its Canadian peers have a conservative lending model, as the country’s banking sector is heavily regulated.

But this approach has meant BNS has a robust balance sheet, allowing it to maintain dividends during the dot com bubble, the financial crash of 2008, and the COVID-19 pandemic. Priced at 10 times forward earnings, BNS has raised dividends by 9.9% annually in the last 25 years.

The third blue chip stock on my list is Manulife Financial (TSX:MFC), which currently yields 5%. Part of a recession-resistant sector, Manulife is an insurance heavyweight with diversified business segments, including asset and wealth management.

Despite a sluggish macro environment, Manulife increased net earnings to $1 billion in the third quarter of 2023, up from $800 million in the year-ago period.

Its core earnings grew by an impressive 28% to $1.7 billion, allowing Manulife to end the quarter with an LICAT (life insurance capital adequacy test) ratio of 137%. Insurance companies need to maintain an LICAT ratio of over 100%, and a higher ratio is favourable.

Priced at 9.5 times forward earnings, MFC stock is very cheap and has increased dividends by 7% annually in the last 20 years.

The Foolish takeaway

For you to earn close to $6,000 in annual dividends, you need to invest a total of $93,300 distributed equally in these three TSX stocks. If dividends are raised by 8% annually, the payouts will double in the next nine years, increasing your effective yield to over 13%. You can identify other large-cap TSX stocks and diversify your portfolio further.