How to Earn $2,500/Year in Steady Passive Income

If you want to load up on passive income, Canada has plenty of dividend stocks to choose from. However, not all dividend stocks are the same. A common error is to assume a stock is a good buy because it has an elevated dividend yield (the annual dividend rate divided by its stock price).

A large dividend yield (like over 7%) looks like a quick and instant cash reward. However, in many cases, an outsized dividend actually suggests substantial business risk. The market has concerns, so it downrates the stock and increases the yield to compensate.

Look for passive-income stocks with 3-5% yields

If investors want to earn safe passive income, they are better off looking for yields in the range of 3-5%. If you wanted to earn $2,500 per year in passive income, you would need to divide $2,500 by your expected yield. For example, $2,500 divided by 3% equals $83,333. $2,500 divided by 5% equals $50,000.

Now that we have established a range for how much cash you would need to invest, here’s a mini portfolio that could earn over $2,600 per year of cash with as little as $60,000 invested.

A top Canadian bank with safe passive income

Royal Bank of Canada (TSX:RY) is one of the highest-quality banks in North America and perhaps even the world. When you include dividends re-invested, it has returned a steady 11% a year compounded over the past decade.

There is a reason why this bank is Canada’s largest stock. It is diversified across product categories and geography. It has a dominant market share in almost all its markets.

Royal has a very strong balance sheet that allows it to be opportunistic when other competitors are pulling back lending and services. It has grown its dividend by around 7-8% annually for more than a decade.

Royal stock yields 4.15%. If you invested $20,000 in Royal Bank stock today, it would earn $207 every quarter, or $828 per year.

A utility with 50 years of dividend growth

Another steady dividend stock is Fortis (TSX:FTS). It has a history of growing its dividend for 50 consecutive years. Fortis is the definition of steady. It has 10 regulated distribution and transmission utilities across North America.

The need for power and heating (natural gas) is not going to dissipate any time soon (or ever). Fortis invests in essential infrastructure, and it collects a regulated return on the equity it invests.

Right now, it anticipates growing by about 6% a year for the five years ahead. Its dividend will likely grow 4-6% annually from here. Put $20,000 into Fortis stock, and you would earn $220.66 of quarterly passive income, or $882.64 annually.

A real estate stock annually growing its distribution

Granite Real Estate Investment Trust (TSX:GRT.UN) is another exceptional stock for stable passive income. It owns a substantial industrial property portfolio across Canada, the U.S., and Europe.

Its properties tend to have long leases (plus-six years) and high-quality tenants (like Magna and Amazon.com). Rents are likely to grow by the mid-single digits in 2024. The company has an exceptional management team and a sector-leading balance sheet.

Granite stock earns a 4.5% distribution yield. It has grown its distribution for 13 consecutive years. Its payout ratio is conservative, so there is likely more dividend growth ahead. $20,000 invested in Granite would earn $74.53 monthly passive income, or $894.30 annually.