Passive Income Mastery: How to Build a Portfolio With $20,000

A $20,000 investment can build a solid, long-term portfolio and make you a wealthy master of passive income.

The Toronto Stock Exchange (TSX), Canada’s largest marketplace for investors, is friendly to newbies and seasoned investors. You can invest $1,000 or less in stocks.

However, $20,000 in capital can build a solid, long-term portfolio with generous passive income streams. The steps are simple but you must follow them to ensure you reach the ultimate goal.

The foundation

Spikes and dips are natural occurrences on the TSX. Since the market scenario can change quickly, the first step is to set up a foundation. The Power Corporation of Canada (TSX: POW) and First National Financial Corporation (TSX: FN) are fundamentally strong companies with impressive dividend track records and dividend growers.

They are excellent choices for their resiliency in the high-interest rate environment. With inflation pressures easing and interest rate cuts coming, the stocks could perform much better than in 2023.

POW pays quarterly dividends, while FN’s payout frequency is monthly. An equal $10,000 position will generate $1,123 in annual passive income. In a 20-year holding period, the capital will grow to $61,316.10, including dividend reinvestment.

Dividend aristocrat

Power Corporation is a major player in the financial services industry. Its core holdings are insurance, retirement, wealth management and investment businesses. This $26 billion international management and holding company also manages a portfolio of alternative asset investment platforms. The clients are in North America, Europe, and Asia.

Under the Power Financial umbrella are publicly listed companies Great-West Lifeco and IGM Financial, plus Groupe Bruxelles Lambert in Belgium. The financial stock is ideal for income investors owing to its dividend aristocrat status. It has a dividend growth streak of eight years. At $39.69 per share, the dividend offer is 5.29%.

All the companies in the group create shareholder value and drive higher earnings and cash flow growth. The alternative asset investment platforms, including ownerships in Sagard Holdings and Power Sustainable Capital, deliver asset management recurring earnings.

Top non-bank lender

Canada’s housing market slumped in 2023 but did not crash as many expected. Buyers and sellers were cautious due to high-interest rates and market uncertainties. They’re still waiting for the right time to enter the market. Increased mortgage rates should have hurt the mortgage finance industry, but First National was unscathed.

This $2.4 billion non-bank lender extends single family residential, multi-family, and commercial mortgages. The financial stock closed at $38.38 on year-end, a positive 15% return for 2023. If you invest today, the share price is $40.63 per share. You can feast on the 5.94% dividend yield.

First National’s full year results will come out soon, although the Q3 2023 results were impressive. Besides the record $141.9 billion Mortgages Under Administration (MUA), net income rose 108% to $83.6 million versus Q3 2022. Because of the excess capital the business generated, the Board of Directors approved and declared a special dividend ($0.75 per common share).

The pure focus on Canadian secured mortgage lending, non-bank business models, and consistent dividend growth appeal to investors. Its most recent dividend increase also marks the seventeenth hike since going public in 2006.  

Become wealthy

Not-so-rich people can become wealthy on the TSX through dividend investing and the power of compounding.

Fool contributor Christopher Liew 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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