How Investing $100 Per Week Can Create $1,500 in Annual Dividend Income

Dividend stocks like First National Financial (TSX:FN) can generate a lot of dividend income with relatively little invested up front.

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Did you know that you can get a substantial amount of dividend income by investing just $100 per week?

You’ll have to invest those $100 sums consistently over a period of time, of course. But if you stick with it, you can get to the point where you’re making $1,500 in annual dividend income after just three years of diligent saving. In this article, I will explore the numbers behind that and suggest some stocks that could make it happen for you.

$100 per week adds up to $15,600 in three years

The first thing we need to know is how much $100 per week works out to on an annualized basis. There are 52 weeks in a year. That means that, after a full year of saving, $100 per week adds up to $5,200. There is no sensible stock that will get you to $1,500 per year with $5,200 invested — that’s a 28% yield! — but there are stocks that could get you there after three years of saving. That takes you to $15,600 in cumulative savings.

At $15,600 saved, you need a 10% yield to get $1,500 per year. Although a 10% yield is very high, it’s not so high that a stock yielding that much is necessarily highly risky. I personally hold 10.3% yielder Oaktree Specialty Lending, and if you look at its historical financials and portfolio composition, you will see that it is far from an unusually risky company. That’s one stock you could invest in to get your $1,500 in dividend income, but this being a Canadian publication, we should look at some Canadian stocks that could generate $1,500 in annual dividend income with $15,600 invested.

One stock that could get you there

First National Financial (TSX:FN) is a Canadian non-bank lender with an extraordinarily high yield. At today’s prices, it yields 6.3% — that’s not quite enough to make the math in the previous paragraph work, but it could get there. You see, FN’s dividend has been growing over time. Over the last five years, the company has grown its dividend by 5.3% per year. It has raised the dividend for 12 years in a row. If FN were to keep growing its dividend at 5.3%, then it would reach a 10% yield on cost in eight years. It might sound like a drag to have to wait eight years for a stock to achieve the yield you want, but it needn’t necessarily take that long.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
First National Financial$39.34615$0.61/quarter ($2.44/year)$1,500.6Quarterly
First National Financial: the math behind $1,500.

In its most recent quarter, First National delivered the following:

  • $129 billion in mortgages under administration, up 10%
  • $563 million in revenue, up 26%
  • $95.5 million in income minus the effect of fair value changes, up 98%
  • $83.6 million in net income, up 108%
  • $1.38 in diluted earnings per share, up 109%

This is much better growth than what First National did over most of the trailing five-year period, in which it grew its earnings at just 7% CAGR. Thanks to high interest rates, FN is growing its earnings more rapidly than it did in the past, when interest rates were low. So, it may be able to deliver dividend hikes at a faster pace going forward. If it does so, then it could become a 10% yielder for those buying it today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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