Passive Income: How Much Cash to Invest to Get $5,000 Per Year

You can get to $5,000 in annual passive income by investing in Fortis Inc (TSX:FTS) stock.

| More on:
Pile of Canadian dollar bills in various denominations

Source: Getty Images

Do you want to get $5,000 in annual passive income?

It’ll take some saving, but it can be done. The average yield on the S&P/TSX Dividend Index is 3.36%, which can get you to $5,000 per year in annual passive income. In this article, I will explore how much you need to invest at a 3.36% yield to get $5,000 a year.

About $148,809

$148,809 invested at a 3.36% yield is $5,000 per year. 3.36% is the yield on the S&P/TSX Dividend Index, and $5,000 divided by 0.0336 is roughly $148,809. If you save $10,000 per year, you can get to $148,809 in total savings in 15 years, plus or minus a few years, depending on how well your investments perform in the interim period between now and when you hit $148,809. If the stock market keeps delivering positive returns, then you will, in practice, reach the required amount in fewer than 15 years.

Can you do better?

$148,809 is a very attainable amount of savings. However, it will take over a decade to get there if your savings power is roughly $10,000 per year. You may feel a bit demoralized that it will require so much savings to get to $5,000 per year, a sum that’s not even enough to live off of.

Well, if you choose your investments well, it’s possible to perform better than the stock market averages. It is not an easy thing to do: it requires investing consistently in stocks that you have meticulously researched and determined to be of superior quality. Beating the broad market indexes on total returns is a professional-calibre achievement, one that entails above-average risk. Simply beating the index yield can be done with relative safety. It simply requires that you find a stock with an above-average yield, stable return prospects, and a modest payout ratio.

Consider Fortis (TSX:FTS), for example. It’s a Canadian utility company that makes 98% of its money from regulated utilities. Regulated utilities have very stable revenue because they provide an essential service and are protected by government regulations (a barrier to entry). Utilities do not always deliver superior total returns, but they pay out fairly reliable dividends most of the time. Fortis has not only paid but raised its dividend for 50 consecutive years. It has also outperformed both the TSX Composite Index and the TSX Utilities Sub-Index over most timeframes.

How has Fortis earned such a distinguished track record?

Well, to start off with, there are certain advantages to being a regulated utility. It ensures that customer money keeps coming in and that competition stays at a minimum. That alone is enough to keep the revenue coming in at a steady and slightly growing pace.

Second, Fortis has invested in growth over the years. It has bought utilities in Canada, the U.S., and the Caribbean. It has bought renewable assets. It’s currently increasing its rate base through its capital expenditure program. Put simply, it is one utility that hasn’t rested on its laurels but has instead invested in growth. That has resulted in it outperforming its fellow Canadian utilities by a wide margin.

Fortis stock has a 4.5% dividend yield at today’s prices. To get $5,000 per year at that yield requires just $111,111 invested. So, Fortis could get you to $5,000 in annual passive income faster than the TSX dividend index could.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Fortis$53.252,084$0.60/quarter ($2.40/year)$1,250/quarter ($5,000/year)Quarterly
Fortis 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 no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Cogs turning against each other
Dividend Stocks

How Interest Rate Cuts Affect REITs

Now is a good time to investigate Canadian REITs and take a position in the form of stocks or exchange…

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

3 Affordable Passive-Income Stocks That Pay Monthly

These three monthly-paying dividend stocks could boost your passive income.

Read more »

alcohol
Dividend Stocks

Retirees: 2 High-Yield Dividend Stocks to Buy in July

Retirees can rely on these dividend stocks for steady passive income and high yields.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Dividend stocks like Fortis Inc (TSX:FTS) have funded many a retirement.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

The Ultimate TSX Stock to Buy With $1,000 Right Now

Once at triple-digit prices, Nutrien stock (TSX:NTR) now offers a steal of a deal for long-term growth as well as…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Set and Forget: 1 Dividend Stock That Could Create $1,000 in Tax-Free Passive Income in 10 Years

Enbridge operates a low-risk business that has allowed the TSX dividend giant to raise its payout by 10% annually since…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: How to Make $106 Per Month Tax Free

Holding quality, high-yield dividend stocks such as Freehold Royalties in a TFSA can help you earn tax-free income for life.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on it

Stocks like First National Financial (TSX:FN) pay you monthly. You can also earn monthly dividends through portfolio diversification.

Read more »