Do you want to earn $2,000 in annual passive income? It might sound like something tough to pull off, but in truth, you can do it with less than $51,000 in savings. If you invest $51,000 at an average dividend yield of 3.95%, you will get more than $2,000 in annual dividend income. In this article, I will explore how you can safely achieve such a yield and get $2,000 per year in tax-free passive income in your TFSA or RRSP.
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Invest in Canadian dividend stocks
Investing in Canadian dividend stocks is a great way to get some extra passive income coming into your account every quarter – sometimes every month. The Canadian market has a higher dividend yield than its U.S. counterparts, due to the fact that it is disproportionately weighted in high yield sectors like banking, energy, and utilities. This makes the Canadian market an excellent one to invest in if you’re after some yield.
As for how to get that Canadian dividend representation in your portfolio: it pays to invest in exchange-traded funds (ETFs). ETFs are pooled investment vehicles that buy large portfolios of stocks, providing you with portfolio diversification. Diversification lowers your risk by “spreading your eggs across many baskets.” As a result, you are less likely to lose money investing in an ETF compared to a randomly chosen individual stock.
Consider the Vanguard FTSE Canadian High Yield Dividend ETF (TSX: VDY) for example. It’s an ETF offered by Vanguard that invests in high yield Canadian stocks. The fund pays a $0.16 distribution monthly, which means $1.92 per year. At today’s price of $48.64, these dividends provide a 3.95% dividend yield.
How much do you need to invest to get to $2,000 in annual passive income with $1.92 in annual dividends per $48.64 share? A little under $51,000, as the table below shows.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| VDY ETF | $48.64 | 1,042 shares costing approximately $50,683. | $0.16 per month ($1.92 per year). | $166.72 per month ($2,000.64 per year). | Monthly |
Now, of course, you shouldn’t invest all of your money in VDY just because it has a high dividend yield. You need other reasons to invest in the fund. Thankfully, VDY has much more to recommend it than just dividends. It’s highly diversified, with 54 stocks. It has a 15.2 price-to-earnings (P/E) ratio and a 1.7 price-to-book (P/B) ratio, both of which indicate relative cheapness. Finally, the stocks in the portfolio have a 12.4% return on equity and an 8.3% earnings growth rate, indicating that they are performing well. Overall, VDY appears to be a quality ETF.
Foolish takeaway
There you have it. It takes $50,683 invested at a 3.95% dividend yield to get $2,000 in annual dividend income. That’s not a whole lot of money to invest, all things considered. And if you get your 3.95% yield in the form of Vanguard’s High Yield Canada ETF, you will get your income coming in each and every month! Overall, it’s an investment worth considering as we approach the closing days of 2024 and prepare for the new year.
