How to Earn $486 in Passive Income With Just $10,000 in Savings

Canadian dividend stocks like First National Financial (TSX:FN) sometimes pay their dividend income monthly.

Is it really possible to earn a substantial amount of monthly dividend income with just $10,000 in savings?

On the surface, it would appear that the answer to that question is “no.” The TSX Composite Index has about a 3% yield, and 3% of $10,000 is just $300 per year, or $25 per month. So it would seem that a person’s dividend journey is likely to start off slow if they have just $10,000 to invest.

But it is possible to earn an above average amount of dividend income, and get much more than just $25 per month in dividend income. There are stocks out there with yields as high as 14%! I won’t mention them here, because they are far riskier than average. However, it’s possible to have a reasonably diversified portfolio with a yield close to 4.9%, producing $486 per year in dividend income. In this article, I will explore one ETF that can get you there.

iShares Canadian Select Dividend ETF

The iShares Canadian Select Dividend ETF (TSX: XDV) is a Canadian ETF made up of high yield stocks. The portfolio consists of many banks, non-bank financials, and energy infrastructure companies (e.g., pipelines). If you’ve ever looked at the landscape of Canadian high yield dividend stocks, many of these sectors will be familiar. Banks are some of the biggest TSX components and also often have high yields. Pipelines have even higher yields but there are fewer of them on the TSX. All of these various high-yielders combine to give XDV a 4.9% portfolio yield.

One interesting feature that XDV has is a monthly payout schedule. Even though most of the stocks in XDV’s portfolio are quarterly payers, the ETF pays a dividend monthly. This might be a function of the fact that the companies in the ETF have varying payout schedules resulting in some cash coming in each month.

A less intriguing quality of XDV is its management fees. The management fee is 0.50% and the expense ratio is 0.55%. This is a lot more than the fee you’d pay on a true broad market index fund, but it’s nowhere near one of the worst fees out there. On the whole, I’d say that an investment in XDV is probably reasonably safe and likely to produce more dividend income than the TSX index, at least initially. A $10,000 investment in XDV should produce $486 in annual dividend income, or $40.50 in monthly dividend income.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
IShares Canadian Dividend Select ETF$29.07344$0.120 per month ($1.44 per year)$41.28 per month ($495 per year)Monthly
IShares Canadian Dividend Select ETF dividend math

Even higher amounts are possible

If you want to get really adventurous with your investments, even higher yields than the one described above are possible. Some individual dividend stocks have yields north of 6%! Most of them are very risky, but a few are fairly sensible.

Consider First National Financial (TSX: FN), for example. It’s a Canadian dividend stock that pays out $0.204167 per month, or $2.45 per year. The shares cost $37.47. If you invest $10,000 in FN stock, you’ll collect $653.85 in annual dividend income, or $54.44 in monthly dividend income – assuming the yield doesn’t change.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
First National Financial$37.47266$0.204167 ($2.45)$54.30 per month ($651 per year)Monthly
FN dividend math

Historically, FN’s dividend has in fact changed. It has risen at a rate of 5.3% per year over the last five years! Nevertheless, even if the dividend growth stops – whether due to interest rate cuts or some other factor – the amounts shown in the table above should be paid for the foreseeable future.

None of this is to say you should run out and invest your entire portfolio in nothing but FN stock. As always, diversification is key. Nevertheless, its dividend goes to show what’s possible with high yield stocks.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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