Generating passive income by investing in real estate is a capital-intensive process. Most real estate owners need to take a sizeable loan to fund their purchase, making it a risky proposition given that interest rates are quite steep right now. Moreover, you also need to account for other costs such as maintenance, taxes, repairs, and vacancy periods.
However, dividend stocks allow you to begin your passive income journey with a small amount of capital. Here’s how you can earn $2,000 in annual passive income in 2024 with less than $40,000 in savings.
Brookfield Renewable stock
Down 44% from all-time highs, Brookfield Renewable (TSX:BEP.UN) currently offers you a tasty yield of 5.3%. Among the largest players in the clean energy space, Brookfield Renewable Partners is well positioned to benefit from multiple secular tailwinds, given the worldwide shift towards renewable energy solutions.
Brookfield Renewable is optimistic about delivering annual returns between 12% and 15% to shareholders over time, as it continues to expand its base of cash-generating assets. The TSX stock has already returned 326% to shareholders in the past decade, easily outpacing the broader indices.
Brookfield Renewable has increased its funds from operations, or FFO, at over 10% annually in the last 10 years, allowing it to raise dividends by 6% each year in this period. The rising demand for renewables should allow Brookfield Renewable to increase its FFO by roughly 10% annually through 2028. Further, Brookfield is also targeting accretive acquisitions, which could expand its FFOs by 9% each year.
Despite a challenging macro environment in 2023, Brookfield should record double-digit growth in its FFO this year, showcasing the resiliency of its business model. Analysts remain bullish on BEP stock and expect shares to surge by 19% in the next 12 months. After accounting for dividends, total returns will be closer to 24%.
Bank of Nova Scotia stock
Another TSX giant is Bank of Nova Scotia (TSX:BNS), which currently offers you a high dividend yield of 6.6%. Due to interest rate hikes in the last two years, lending companies, including BNS, were forced to raise capital requirements to account for higher delinquency rates.
A significant uptick in the provision for credit losses, or PCLs, and a tepid lending environment meant earnings for BNS and its peers have narrowed in recent quarters.
Priced at 10 times forward earnings, BNS stock is quite cheap, given its earnings are forecast to expand by almost 8% annually in the next four years.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Brookfield Renewable | $34.81 | 488 | $0.4575 | $223 | Quarterly |
| Bank of Nova Scotia | $64.50 | 264 | $1.06 | $280 | Quarterly |
While BNS is part of a cyclical sector, its entrenched position, conservative lending policies, and robust balance sheet have allowed it to increase dividends by 9.9% annually in the last 25 years.
The Foolish takeaway
A total investment of $34,000 distributed equally in the two TSX stocks will allow you to earn $2,000 in annual dividend income. You can identify other blue-chip TSX dividend stocks and further diversify your portfolio, which lowers investment risk.
If the companies raise dividends by 10% annually, your payouts will double within the next eight years, increasing the effective yield significantly.
