How to Earn $607/Year in Passive Income With Just $10,000 in Savings

Canadian financial stocks like First National Financial (TSX:FN) offer a lot of yield.

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Did you know that you can get $607 per year in passive income with as little as $10,000 in savings? By investing in high-yield sectors such as TSX financials, energy stocks and utilities, you can get a yield well north of 6%. Although most stocks in these sectors do not yield 6.07%, some individual ones yield even more than that. In this article, I will explore a simple strategy you can use to get a 6.07% yield and $607 in annual passive income with as little as $10,000 invested upfront.

Invest in TSX financials

TSX financials are among the best asset classes out there in terms of yield. Much like energy and utility stocks, TSX financials typically have high yields. However, their performance has been much better than utilities’ and much less volatile than energy companies’ over time.

For the most part, TSX banks are known for “slow but steady” capital gains and consistently paid dividends. In good market conditions, the banks often raise their dividends. Even in bad market conditions, the dividends are rarely cut. For example, during the 2020 COVID-19 recession, most of the big banks maintained their dividends. Their prices took a dip, but they recovered very quickly.

The yield you can expect

TSX financials generally offer yields between 3% and 7%. The yields are usually higher among banks than among insurance companies. Many of Canada’s big banks have yields above 5%. Some smaller niche firms have yields approaching 7%. If you want to know what the average yield on a TSX financial stock is, you could look at an ETF like the iShares S&P/TSX Capped Financials Index. It invests in a diversified portfolio of banks and has a 3.72% dividend yield. So, we can say that 3.72% is the weighted average dividend yield on TSX financials.

Some individual TSX financials to consider

Earlier I said I’d reveal how to get a $607 yield on a $10,000 portfolio. Then I said that the average yield on TSX financials was 3.72%. That’s not quite the yield we need. To get such a yield, we need to look into individual stocks.

First up, we have First National Financial (TSX:FN). It’s a Canadian mortgage lender that operates much like a bank, only without deposits. Its shares offer a 6.73% yield at today’s prices.

First National Financial has some characteristics that make it attractive from a risk management standpoint. First, it doesn’t have any deposits; checking and savings accounts can be very risky for banks, because the money isn’t “locked up.” FN doesn’t have this problem. Second, FN stands to gain from the coming increase in interest rates on variable rate mortgages. Third and finally, it’s a relatively small company with plenty of room to grow.

Next, we have The Toronto-Dominion Bank (TSX:TD). TD Bank is a company that many Canadians will be familiar with. It is Canada’s second-largest bank; its shares yield 5.42%. This is among the highest yields you’ll find in TSX financials. The reason the yield is so high is because TD Bank is currently in the midst of a major scandal. Bank employees were found laundering money in New Jersey. News of this controversy hammered TD stock several times over the last two years. It has already booked $650 million in provisions stemming from fines related to the scandal. However, the company’s revenue is still growing, and it even had positive growth in adjusted earnings last quarter. TD’s dividend is also safe and well-covered.

On that note, the average of TD Bank’s 5.42% yield and First National’s 6.73% yield is 6.07%. So, with these two stocks in your portfolio you can get $607 per year in passive income with just $10,000 invested. See proof below.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
First National$36.40138$0.2042/month ($2.45/year)$28.17/month ($338/year)monthly
TD Bank$75.1866$1.02/quarter ($4.08/year)$67.32/quarter ($269/year)quarterly
Passive income math

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 positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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