2023 has been a tough year fighting through those grocery bills and mortgage payments. But the new year brings hopes as the U.S. Fed has officially paused interest rate hikes and inflation has eased. While you set up your 2024 budget, it is time to set up your 2024 investments, too. The stock market investment comes with risk and no certainty of returns. But few dividend aristocrats trading on the TSX provide some certainty on the payouts, giving you an opportunity to budget your investment income.
Earn the amount you invest every year
You read it right. You can double your investment and get $1,800 annually in passive income by investing $1,800 annually today. The trick is staying diversified and invested in the market. There are several investment strategies, including The Rule of 72.
According to the rule, divide the percentage returns by 72 to know in how many years your money will double. For instance, several TSX dividend stocks give an average annual yield of 6%. Going by the rule of 72 (72/6 = 12 years), a 6% return can double your money in 12 years. But did you know you can get the same amount as dividend income while keeping your invested amount and capital appreciation intact? Let us understand with an example.
How to earn $1,800 per year by investing $1,800 per year
Suppose you invest $1,800 annually in a stock with an average annual dividend yield of 6%. You reinvest the dividend payout in stocks giving a 6% dividend. Look at the table below to understand the investment in detail.
| Year | Investment | Investment Return @ 6% | Total Amount |
| 2024 | $1,800.00 | $108.0 | $1,908.0 |
| 2025 | $3,708.00 | $222.48 | $3,930.5 |
| 2026 | $5,730.48 | $343.83 | $6,074.3 |
| 2027 | $7,874.31 | $472.46 | $8,346.8 |
| 2028 | $10,146.77 | $608.81 | $10,755.6 |
| 2029 | $12,555.57 | $753.33 | $13,308.9 |
| 2030 | $15,108.91 | $906.53 | $16,015.4 |
| 2031 | $17,815.44 | $1,068.93 | $18,884.4 |
| 2032 | $20,684.37 | $1,241.06 | $21,925.4 |
| 2033 | $23,725.43 | $1,423.53 | $25,149.0 |
| 2034 | $26,948.96 | $1,616.94 | $28,565.9 |
| 2035 | $30,365.89 | $1,821.95 | $32,187.8 |
In 2004, you invest $1,800 in a stock that gives you a 6% dividend of $108 at the end of the year. Next year, you reinvest the $108 payout, bringing your investment amount to $1,908. On this, you invest another $1,800 for 2025, increasing your 2025 total invested amount to $3,708. In 2025, you will earn a 6% yield of $3,708, increasing your dividend income to $222.48.
Your $1,800 annual investment plus your dividend reinvestment every year will give you the same payout equal to the amount you invested from your pocket after 12 years. And in this example, any capital appreciation of your invested amount is an added bonus.
If you invest $4,000 annually, you can get $4,000 in annual passive income after 12 years. If you manage to lock in a higher yield, apply the rule of 72 and get a rough idea of how many years you need to earn a similar passive income.
Risks in building a passive income portfolio
In the above example, I assumed the stock pays a consistent 6% yield. But buying a dividend aristocrat at the dip can help you lock in a higher yield as it keeps changing with the stock price. Some stocks also grow their dividends, giving you an opportunity to earn $1,800 before 12 years. However, there are times when even aristocrats pause dividend growth or cut dividends. Any such event can change the entire calculation.
Hence, ensure you keep a conservative return percentage, the minimum a stock can give.
Enbridge (TSX:ENB) and Telus Corporation are passive income investments to consider. Telus even offers a dividend reinvestment plan, while Enbridge has paused its. Enbridge has been paying dividends for over 50 years without cutting them. Management has successfully increased dividends every year for the last 29 years and expects to continue growing it at an average annual rate of 3%. Its low-risk business model can give you some certainty and help you plan your investment income.
In the worst-case scenario, Enbridge may pause dividend growth. But you will still be on track to the $1,800 annual passive income.
