Stocks are an attractive way to earn passive income. There are several advantages to owning stocks for income rather than other passive income alternatives (like private investment partnerships, investment properties, or multi-level marketing/franchises).
Stocks are ideal assets for earning passive income
Firstly, stocks are cheap to buy and sell. Some brokerages offer free commissions, and most discount brokerages offer between $5 and $10 commissions to buy and sell stocks. Other passive income alternatives require significant upfront fees (legal, taxes, registration, etc.).
Secondly, stocks are liquid. You can buy and sell readily on the stock market. As a result, no investment is locked in or eternal until maturity.
Lastly, you can put your stocks in tax efficient accounts like the Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). In those accounts, you aren’t required to report or pay tax on your dividend income. If you don’t need the cash immediately, they are great places to tax-efficiently compound passive income.
How much cash do you need to invest to earn $100 of monthly passive income?
You might be thinking it would be nice to earn an extra $100 to $125 per month in passive dividend income. But how much cash would you need to deploy to earn an average of $100 per month?
Well, it depends on the yield you expect to earn. Most quality Canadian dividend stocks trade with a yield between 3% and 6%.
If you divide the required income ($100 per month multiplied by 12 months equals $1,200 per year) by the yield range of 3% and 6%, you will need to invest between $20,000 (for a 6% average yield) and $40,000 (for a 3% average yield) to hit your annual $1,200 income target.
3 solid stocks for steady (and growing) dividend income
A mix of Canadian dividend stocks within this range can help you achieve your goals. Here’s a mini three-stock portfolio that could turn a total $30,000 investment into $120 (and growing) of average monthly income.
Investing $10,000 in Granite Real Estate Investment Trust (TSX:GRT.UN) would buy 135 units at today’s price of ~$74. Granite stock is yielding 4.46% today. That investment would earn $37.12 of monthly passive income (or $445 annualized).
Granite is the largest TSX-listed industrial landlord with logistics and manufacturing properties across Canada, the U.S., and Europe. Granite has a solid management team, strong balance sheet, good mid-to-high single digit cash flow growth prospects, and a record of consecutive annual distribution growth.
Another $10,000 invested in Pembina Pipeline (TSX:PPL) would buy 209 shares at $47.83 per share. With Pembina stock yielding 5.58%, you would earn $139.50 of quarterly passive income. That would average to $46.50 per month.
Like Granite, Pembina has a very strong balance sheet due to very strong excess cash generation in the past few years. Rising strength in commodity prices could certainly help going forward. The company could benefit from LNG growth and expanding demand for energy in the coming years.
Fortis (TSX:FTS) is a boring utility that is growing at about 5% a year. However, this company is a great bet for dividend security and low volatility. Its utility operations are very stable, it has a strong balance sheet, and it has a 50-year record of consecutively raising its dividend.
It yields 4.55% today. A $10,000 investment in Fortis would buy 195 shares at a price of $51.84. You would earn $115 of quarterly passive income, or $38.35 averaged monthly.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Granite REIT | $74 | 135 | $0.275 | $37.12 | Monthly |
| Pembina Pipeline | $47.83 | 209 | $0.6675 | $139.50 | Quarterly |
| Fortis | $51.84 | 195 | $0.59 | $115 | Quarterly |
