How Much to Invest to Get $500 in Dividends Every Month

Investing your money to earn passive income is one of the best ways to take advantage of the power of compound interest. Plus, the TSX is filled with plenty of high-quality dividend stocks, some of which even return cash to investors every month.

Therefore, with so much choice and opportunity to diversify your investments, plus registered accounts like the Tax-Free Savings Account (TFSA) that allow you to earn significant dividend income without paying any tax on those gains, high-quality TSX dividend stocks are some of the best investments you can buy and hold long-term.

So, with that in mind, let’s look at how much money you need to invest to earn $500 in dividends every month or upwards of $6,000 in dividends per year.

How much do you need to earn $500 in dividends every month?

Determining how much capital you need to invest in the stock market to earn $500 of dividends every month or $6,000 of dividends per year depends heavily on the average yield of your portfolio.

The higher the yield of the stocks you buy and, therefore, the higher the average yield of your portfolio, the less capital you’ll need to invest.

For example, a portfolio with an average yield of 7% would only need $85,714.29 invested to generate an average of $500 a month. A portfolio with an average yield of 6% would need to invest $100,000 to earn $6,000 per year or an average of $500 a month. A portfolio that only generated a yield of 5% would need to invest $120,000.

It’s worth noting, though, that for many stocks, the higher the yield, the higher the risk of the stock and the sustainability of the dividend. So, although a higher yield can generate you more passive income, you’ll want to own numerous stocks with various yields to help diversify your investments and mitigate risk.

Three top passive-income generators on the TSX

For example, investors could diversify their investments by investing in several different TSX dividend stocks, such as Enbridge (TSX:ENB), Emera (TSX:EMA) or a company that pays you dividends every month like Pizza Pizza Royalty (TSX:PZA).

Both Enbridge and Emera are massive cash cows with essential operations, making them ideal dividend stocks that return cash to investors quarterly.

Enbridge is much larger and more diverse, with operations such as oil and gas transportation, utility services, energy storage services, and a growing green energy portfolio.

Meanwhile, Emera owns several regulated utility businesses, making its future earnings and dividend payments highly predictable. It’s one of the safest and most defensive businesses on the TSX, making it a top choice for dividend investors.

Because these two quarterly dividend stocks are so reliable and consistently generate billions in cash flow, it’s no surprise that each has lengthy dividend-growth streaks. In fact, Enbridge has raised its payout every year for more than a quarter century now, and Emera’s dividend growth streak currently sits at 17 straight years.

However, while Pizza Pizza doesn’t operate in an industry that’s as safe and defensive as Enbridge or Emera, it’s proven to be a reliable passive-income generator for years.

Pizza Pizza’s well-known brand that offers affordable and convenient food options has kept it a favourite among Canadian consumers, and with the company consistently generating millions in royalty income, its structure makes it an ideal dividend stock.

Plus, Pizza Pizza pays investors dividends every month, which is ideal for Canadians looking to put that money right back to work and take advantage of the power of compound interest.

In this scenario, these three stocks average a yield of 6.66%, which would mean investors would need to invest just over $90,135 to earn $6,000 per year in dividends or a monthly average of $500.

That said, though, you’ll certainly want to buy more than just three dividend stocks to ensure you mitigate as much risk as possible and diversify your investments adequately.