Recently, I hit a new income milestone in my portfolio:
$3,873.64 in projected dividend and interest income per year. Thanks in no small part to some well-timed guaranteed investment certificate (GIC) investments, my portfolio income ramped up dramatically in the last 12 months. Through 2023 and early 2024, it was easy to get GICs yielding 5%, sometimes even 5.5%. With the Bank of Canada now cutting interest rates, yields that high are no longer available risk free. However, I plan to keep buying GICs as long as the yields are over 3%, as the recent inflation rate was close to 2%, meaning that GICs still provide nearly risk-free, positive, real returns.
Given the amount of dividend and interest income I’m earning now, I decided to set $5,000 per year as my passive income goal for 2025. In this article, I’ll explore how I plan to get there.
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Guaranteed investment certificates
As mentioned previously, GICs were the single biggest contributor to my big jump in passive income in 2023 and 2024. I plan to continue buying GICs, mainly by re-investing my existing ones as they mature. I might also cash out some stocks and put the money into GICs. GIC yields are likely to trend downward in the months ahead, but on the flip-side, I have a lot of profitable stock positions that I can trim or exit to increase my total amount invested in GICs.
Stocks
After GICs, the asset class that’s funding most of my passive income is stocks.
One stock that is currently adding a lot of passive income to my portfolio is The Toronto-Dominion Bank (TSX:TD). It is Canada’s second largest bank, a company whose shares I have a long history with. I get $510 in dividends per year from this stock. I do not plan to buy anymore TD shares at prices near the current ones, as the stock has been rallying hard despite the company being embroiled in a very risky money laundering investigation.
Why do I like TD stock?
First, the company’s operations are doing well. TD would have had the most rapid earnings growth of all big six banks last quarter had it not set aside $3.5 billion for potential fines. I think its earnings growth will really ramp up next year if the money laundering investigation concludes by the end of this year.
Second, I bought most of my TD shares very cheap. I bought most of them at $74; I bought a smaller lot at $78. Today, TD is going for $86. The capital gain here is not massive but it has occurred very rapidly, and is in conjunction with a 5% dividend yield. So I’m going to sit tight with my TD shares.
As far as new stocks go, I’m considering taking a position in First National Financial (TSX:FN). That stock yields 6.3%, meaning that a $20,000 investment in it would provide me with the $1,260 I need to hit $5,000 per year in passive income. I’m still not 100% sure on this stock – I need to figure out how it will respond to the Bank of Canada’s ongoing interest rate cuts – but I know that it has some things going for it, such as a cheap valuation and adequate growth.
ETFs
ETFs are the third biggest contributor to my dividend and interest income after stocks and GICs. I own a good bunch of these: broad market ETFs, financial ETFs, emerging market ETFs, and more. One longstanding ETF in my portfolio is the iShares S&P/TSX 60 Index Fund (TSX: XIU). It pays me about $128 per year in dividend income. I might be able to increase my dividend income modestly in 2025 by buying more XIU shares, although in general, my ETF positions have lower yields than my stock positions.
