The idea that investing in the stock market to earn safe dividends requires a large amount of capital is a common misconception among new investors. In fact, with the right strategy and some patience to hold stocks for the long term, you can build a portfolio of dividend-paying stocks that generate consistent passive income with just $10,000.
In this article, I’ll guide you on how to earn safe dividends with a relatively small initial investment.
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How to earn safe dividends in Canada
Let’s start by defining what a safe dividend is and why it matters. In simple words, a safe dividend is a dividend that is unlikely to be cut or suspended by the company, regardless of temporary economic cycles or times of macroeconomic weakness. A safe dividend matters because it provides a reliable source of income for investors, regardless of the market fluctuations. A safe dividend also signals the company’s management’s confidence in its future earnings and cash flow generation, as well as its commitment to reward shareholders.
Now, let me give you an example of how to earn safe dividends with an investment of only $10,000 in a single high-quality Canadian bank stock. I’m specifically choosing the banking sector here because it’s known for stable dividend payouts in Canada. In addition, the Bank of Canada’s recent decision to slash interest rates for the first time in over four years makes this bank stock look even more attractive, as lower interest rates could boost the demand for loans and mortgages, potentially increasing the bank’s profitability in the coming years.
A top dividend stock from the banking sector
Bank of Nova Scotia (TSX: BNS), or Scotiabank, is the bank stock I would recommend right now to anyone looking for a safe and reliable dividend income. This Toronto-headquartered bank has been paying dividends to investors for more than one-and-a-half centuries since 1833, making it one of the longest-running dividend-paying companies in Canada.
Based on its market cap of $77.3 billion, Scotiabank is currently the fourth-largest Canadian bank, as its stock trades at $62.84 per share after rising by 11.8% over the last eight months.
At this market price, this safe dividend stock pays around $1.06 per share in quarterly dividends, which translates into a juicy annualized dividend yield of 6.7%. Scotiabank has an excellent track record of raising dividends over time, as its dividend per share rose by around 76% in the 10 years between its fiscal year 2013 and 2023 (ended in October 2023).
In the latest quarter ended in April 2024, the Bank of Nova Scotia posted a 5.3% year-over-year increase in its revenue to $8.3 billion. Although higher provisions for credit losses mainly due to challenging macroeconomic conditions affected its profits, its long-term growth outlook remains strong. The bank’s robust financial position and diverse international operations across different geographies and segments support this optimistic fundamental outlook.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | TOTAL INVESTMENT | QUARTERLY DIVIDEND PER SHARE | TOTAL ANNUAL PAYOUT |
| Bank of Nova Scotia | $62.84 | 159 | $9,992 | $1.06 | $674 |
| Prices as of June 24, 2024 |
Dividend income with a $10,000 investment
With an investment of $10,000, you can buy Scotiabank’s 159 shares at the current market price, which could help you receive roughly $674 in dividend income each year. That’s a nice passive-income stream that you could use to supplement your other sources of income or reinvest in more shares to grow your portfolio. That said, it’s wise to diversify your income portfolio by investing in a variety of dividend stocks rather than depending solely on a single stock.
