Have you ever wondered how much money you need to invest to make $600 per month in your Tax-Free Savings Account (TFSA)?
In truth, the answer varies from person to person. While it can be tempting to invest in ultra-high-yield stocks paying out more than 10% of their price, you have to be wary of such stocks. They are often riskier than average. If you invest $72,000 in a monthly-pay dividend stock yielding 10%, you should theoretically get $600 per month in income. The problem is that if the stock cuts its dividend — which happens often enough with ultra-high yielders — you may not get the $600 per month in reality.
So, you need to have modest yield goals when investing in monthly pay dividend stocks. While “modest” is open to interpretation, I think something like a 6% portfolio yield can be obtained without taking on an inordinate amount of risk. In this article, I explore how much you’d need to invest at a 6% yield to get $600 per month from a monthly-pay dividend stock portfolio.
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About $120,000
At a 6% yield, you’d need to invest $120,000 to get $600 per month in dividend income. $600 per month is $7,200 per year. $7,200 divided by 0.06 is $120,000. So, if you want to get $600 per month with a relatively obtainable dividend yield, aim to invest $100,000 or more.
Securities that could get you $600 a month with $120,000 invested
Having explored how much money you’d need to invest to get $600 per month in dividend income in your TFSA, it’s time to look at securities that could get you to that goal.
First National Financial (TSX: FN) is a pretty good example. It’s a Canadian non-bank mortgage lender that pays a $0.208334 dividend each and every month. $0.208334 times 12 is $2.50. At today’s $38.55 stock price, that amount provides a $648 monthly yield. So, First National has slightly more yield than is necessary to make our $120,000/$600 per month dividend math work.
If you invest $120,000 in First National stock today, you should get about $648.50 per month in dividend income. Here’s the math on that:
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| First National Financial | $38.55 | 3,113 | $0.208334 per month ($2.50 per year) | $648.50 per month ($7,782 per year) | Monthly |
As you can see, you can get to more than $600 per month in FN stock with just $120,000. That is a pretty good dividend return by any standard.
A disclaimer
Before concluding, I should say that you shouldn’t actually go out and invest $120,000 in First National stock if that’s all the money you have. The stock faces certain risks stemming from being a mortgage lender, such as credit issues among Canadian homeowners and the possibility of lower interest rates. The Motley Fool generally recommends owning at least 20 stocks in your portfolio. Nevertheless, FN is a perfect example to illustrate how $120,000 invested in high-yield dividend stocks can get you more than $600 per month. With enough savings, you can reach that amount of passive income eventually.
