If you’re looking to build a reliable source of passive income, dividend stocks are a good consideration. While monthly dividend payers are convenient, you would be limiting your choices if you solely focused on them. Instead, investors should focus on solid, high-yield stocks that offer sustainable dividends — regardless of their payment schedule.
In this article, we’ll explore how many shares of Bank of Nova Scotia (TSX:BNS) you need to own to earn $500 per month in dividends, and why it could be a smart addition to your portfolio.
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The importance of solid income stocks
While some investors prioritize monthly dividends, it’s crucial not to overlook stocks that offer quarterly, semi-annual, or even annual payouts. A stock’s dividend frequency doesn’t necessarily correlate with its reliability or potential for growth. To calculate your monthly income, you simply need to project the annual dividend payout and divide it by 12.
For example, Bank of Nova Scotia stock offers a quarterly dividend of $1.06 per share, equating to an annualized payout of $4.24 per share. For investors holding 100 shares, this results in $106 every quarter, or $424 annually – roughly $35 per month if the bank maintained the same dividend.
Scotiabank’s dividend history and stability
While Scotiabank’s dividend has remained unchanged for the past two years, this doesn’t signal poor performance. In fact, it may be a sign of prudence. The big banks in Canada, including Scotiabank, typically raise their payouts over time. However, maintaining a stable dividend can be a more responsible approach during uncertain times.
At least Scotiabank is demonstrating the ability to sustain its dividend, with a current payout ratio of around 66% of adjusted earnings. If things improve for the bank, there’s potential for dividend growth in the future.
Importantly, Scotiabank has been paying dividends consistently since 1833, and it hasn’t cut its dividend in over 50 years at least. The bank’s 15-year dividend growth rate stands at 5.3%, making it a solid choice for long-term income investors.
How many shares do you need to earn $500 monthly?
Let’s break down how many shares of Scotiabank you would need to own to generate $500 in monthly dividends. Scotiabank’s current dividend yield is around 6.2%, based on a share price of $68.18.
To earn $500 per month, or $6,000 annually, you would need to hold approximately 1,415 shares of Scotiabank. This calculation assumes the dividend remains steady, though Scotiabank’s reliable payout history suggests that in the long run, you can expect dividend growth.
The Foolish investor takeaway: Why Scotiabank makes a great income stock
Scotiabank offers a high dividend yield with the potential for long-term growth, making it a good option for investors seeking reliable income. While it may not offer the quickest dividend hikes, the stability and long-term growth of its dividend are hard to ignore. If you’re looking for a stable source of passive income, Scotiabank could be an ideal stock to add to your diversified portfolio.
However, investors should also consider complementing their Scotiabank holdings with higher-growth stocks to balance risk and optimize returns over time.
