There’s a big problem when it comes to investors seeking out passive income. That problem is that many are only counting dividend income without thinking about returns. Passive income is instead any income that’s made while you’re doing anything else! Whether it’s sleeping, eating, or taking a “bathroom break,” you’ll be making passive income whether it’s dividends or returns.
Another problem is that so many investors still don’t have a Tax-Free Savings Account (TFSA). Honestly, this might be an even more awful problem. After all, not only can you make tax-free passive income through a TFSA, but you can take it all out any time you want for whatever reason!
Today, let’s look at how you can make some tax-free passive income with just one stock.
First, be consistent
If you’re hoping to make $5,000 a year, it’s going to take a big investment. Yet I wouldn’t simply invest all at once! Instead, create a budget and stick to it. If you want to make enormous income in a year, a great method to use is the net-zero budget.
This budget is where you assign every single dollar of your net income to your budget. Don’t leave $5 left over for even a coffee; instead, assign that $5 to your coffee (or skip it all together, in my opinion). By assigning your cash, you’ll be able to see month after month where you’re wasting money, and able to tell yourself that you cannot buy those items in the future, because all your cash will be assigned elsewhere.
In fact, this is a great method to use to invest on a regular basis. Once you’ve assigned all your net income to items in your budget from debt and groceries to gas and property taxes, the rest of that income should go towards investments. Treat it as a bill payment and make it automatic by creating automated contributions that go towards your TFSA again and again.
It’ll all add up!
What many investors find is that over time, they’ll feel as if they got a raise by using this method! Suddenly, you’re not wasting money on little things that all add up to create lower investments or, even worse, credit card debt. You’ll look at your TFSA and see it grow higher and higher instead!
What you’ll then need to do is find a strong stock that’s set to grow, while also adding in dividend income. That passive income can be used to reinvest back into your stock again and again as well as add on to your passive income for the year!
A great option these days would be to consider a bank stock, such as Canadian Imperial Bank of Commerce (TSX:CM). CIBC stock is a solid option as it’s one of the Big Six banks, with a high dividend yield and valuable share price. While the bank certainly has troubles during economic downturns, in the next year, we could see it surge back to normal share prices!
Create that passive income
So, if you’re hoping for around $5,000 in passive income, through dividends and returns, look at how CIBC stock has performed in the last few years. Shares are now back to near 52-week highs, yet it’s still far off from all-time highs.
Now, let’s say you can put aside cash every single month and invest it in CIBC stock. You then see shares return to all-time highs of around $80 per share. Here is how much you would need to invest to create about $5,000 in passive income.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| CM – now | $63 | 243 | $3.60 | $874.80 | quarterly | $15,309 |
| CM – highs | $80 | 243 | $3.60 | $874.80 | quarterly | $19,440 |
As you can see, by investing in 250 shares, you can create $874.80 in dividend income right now. And if you purchase that many shares, you start with $15,750 and end with $20,000. That creates returns of $4,131. All together, you’ll end up with $5,005.80 in passive income! And that’s just from returning to past highs.
