How Much to Invest to Earn an Extra $5,000/Year in Passive Income

The stock market is a great place to invest and earn passive income. Unlike other passive-income investments (like real estate or a small business), your stock investments are completely liquid (easy to trade in and out), tax beneficial (you can place stocks in tax-advantaged accounts like the Tax-Free Savings Account, or TFSA, or the Registered Retirement Savings Plan, or RRSP), and you have no need to manage a business.

Dividend stocks are ideal for passive income

Sure, you need to complete your due diligence to ensure you understand the stocks you are owning. Certainly, you will also need to ensure the dividend income produced by those stocks is sustainable.

However, beyond that, there is not a lot of work other than collecting your dividend cheques and monitoring the health of the business generating that income.

If you are looking for a way to generate $5,000 of annual passive income from stocks, you will need about $120,000 of starter capital. You would need to aim for an average 4-5% dividend yield to achieve your target.

While it is not the highest yield available, most stocks in that range have a sustainable dividend and even have some dividend growth as well. Here’s a mini portfolio that combined could earn $5,400 a year in passive income.

An energy stock with an amazing dividend-growth record

Canadian Natural Resources (TSX: CNQ) might be one of the best dividend stories in Canada. Yet, because Candian Natural operates in the energy industry, its top dividend record is often forgotten.

Canadian Natural has increased its dividend for 24 consecutive years by a 21% compounded annual rate. It is a spectacular record. While CNQ is affected by energy prices, it is in a solid position (even after oil and gas prices have declined).

It has decades of energy reserves. It has a low-cost operating model. Lastly, its balance sheet is in its strongest position in years.

CNQ yields 4.5% today. A $40,000 investment would earn $447.20 quarterly or $1,788.8 annualized.

A real estate stock for great passive income

Granite Real Estate Investment Trust (TSX: GRT.UN) is up 6.6% in 2024, but there is still more upside ahead. That is especially true if interest rates continue to decline.

Granite has a very high-quality portfolio of industrial assets across North America and Europe. While the real estate investment trust (REIT) was founded by Magna, Magna makes a small part of its portfolio today. Most of its properties have high-end e-commerce, distribution, and logistics tenants.

While the industrial market has recently weakened, Granite has an incredibly solid balance sheet that backstops its portfolio. It has raised its distribution for 13 consecutive years. It yields 4% today. A $40,000 investment would earn $136.13 monthly or $1,633.56 annually.

An infrastructure stock with a growing dividend

Another stock worth buying for passive income is Pembina Pipeline (TSX: PPL). This company has a great mix of energy infrastructure assets in Western Canada. For many energy producers, Pembina is their only option to get their energy production to market.

While Pembina has some commodity exposure in its marketing business, its dividend is covered by its contracted pipeline and midstream assets. It sustained its dividend through the pandemic oil crash.

With a sector-leading a balance sheet, it is even better positioned today. Pembina should have ample fire power to invest in intriguing growth opportunities (like LNG export facilities).

Pembina yields 4.97%. It has been increasing its dividend over the past few years. A $40,000 investment in Pembina would earn $496.11 quarterly or $1,984.44 annually.