How to Earn $2,000 in Passive Income With Less Than $40K in Savings

Here’s how blue-chip TSX dividend stocks such as Enbridge can help you create a passive income stream for life.

| More on:

Image source: Getty Images

Creating an alternate stream of passive income is always a great strategy, as it provides individuals and households with the financial flexibility to navigate an uncertain macro environment. However, it’s not easy to start a passive income stream, as you need to identify the appropriate asset class that can deliver inflation-beating returns over time.

In the last two years, rising interest rates have made fixed-income instruments such as guaranteed income certificates (GICs) an attractive option. Several banks and financial institutions offer a yield of 5%, which means you can earn $2,000 in annual passive income with a $40,000 investment in GICs. However, there are other asset classes you can gain exposure to and build a recurring income stream from.

In the last several decades, equities have comfortably outpaced inflation, creating game-changing wealth for investors in the process. You should identify a portfolio of dividend stocks with growing payouts, attractive yields, and widening cash flows. In addition to a steady dividend payout, investors can benefit from capital gains as well. Here are two TSX dividend stocks you can buy right now.

Enbridge stock

A TSX giant, Enbridge (TSX:ENB) is among the most popular dividend stocks in Canada. Currently, Enbridge stock trades 26% from all-time highs, increasing its forward yield to 7.5%. Enbridge is part of a cyclical sector but has raised its dividends by 10% annually in the last 28 years, showcasing the resiliency of its cash flows. A majority of Enbridge’s cash flows are tied to long-term contracts, which are indexed to inflation. This suggests Enbridge is relatively immune to fluctuations in commodity prices.

Enbridge has successfully diversified its revenue base and is investing heavily in renewable energy, a long-term megatrend. Moreover, a payout ratio of less than 80% provides Enbridge with enough room to reinvest in capital expenditures, strengthen its balance sheet, and target accretive acquisitions, all of which the energy infrastructure giant has done in 2023.

Priced at 16 times forward earnings, ENB stock trades at a discount of 12% to consensus price target estimates. After adjusting for dividends, total returns may be closer to 20% in the next 12 months.

Brookfield Renewable Partners stock

Down roughly 50% from record prices, Brookfield Renewable Partners (TSX:BEP.UN) offers a tasty yield of 6.1%. Despite a challenging macro backdrop, Brookfield reported record funds from operations (FFO) of US$1.1 billion, up 7% from the year-ago period.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Enbridge$48.55304$0.915$278Quarterly
Brookfield Renewable Partners$30.83478$0.4825$230Quarterly

The growth story for Brookfield is far from over, given the worldwide shift towards clean energy solutions. For instance, Brookfield has a growing development project backlog, which includes 24 gigawatts of advanced-stage projects. Once operational, these projects will add US$300 million in FFOs each year.

Brookfield Renewable continues to expand its base of cash-generating assets, which should result in higher cash flows and dividends. In fact, the clean energy giant expects to deliver double-digit FFO growth in the next five years.

The Foolish takeaway

Investing $29,500 equally in the two TSX stocks will help you earn $2,000 in annual dividends. If the payouts are raised by 7% annually, your dividend income will double in the next 10 years.

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 Aditya Raghunath has positions in Brookfield Renewable Partners and Enbridge. The Motley Fool recommends Brookfield Renewable Partners and Enbridge. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A worker gives a business presentation.
Dividend Stocks

TSX Communications in April 2024: The Best Stocks to Buy Right Now

Here are two of the best TSX communication stocks you can buy in April 2024 and hold for years to…

Read more »

Man considering whether to sell or buy
Dividend Stocks

Royal Bank of Canada Stock: Buy, Sell, or Hold?

Royal Bank of Canada (TSX:RY) has a high dividend yield. Should you buy it?

Read more »

Businessman looking at a red arrow crashing through the floor
Dividend Stocks

BCE’s Stock Price Has Fallen to its 10-Year Low of $44: How Low Can it Go?

BCE stock price has dipped 39% in two years and shows no signs of growth in the next few months.…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

Invest $10,000 in This Dividend Stock for $3,974.80 in Passive Income

This dividend stock gives you far more passive income than just from dividends alone, so consider it if you want…

Read more »

Payday ringed on a calendar
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month

Can a 6% dividend yield help you build a monthly retirement income? An investment made right can help you build…

Read more »

Payday ringed on a calendar
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $1,000 Every Month?

These three monthly-paying dividend stocks can help you earn a monthly passive income of $1,000.

Read more »

Dividend Stocks

3 Dividend Stocks to Double Up on Right Now

Some of these dividend stocks will take longer to recover than others, but they'll certainly pay you to stick around.

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: How Much to Invest to Earn $250/Month

Want to earn $250/month of tax-free passive income? Here are four Canadian dividend stocks to look at buying in your…

Read more »