How to Earn Over $5,000 a Year in Dividends With Less Than $100K in Savings

A low-cost strategy to begin a recurring passive-income stream is to invest in quality dividend stocks. In addition to a company’s dividend yield, it’s essential to analyze its fundamentals to ensure these payouts are sustainable across business cycles.

Moreover, the best dividend stocks will help you amplify total returns via long-term capital gains. So, let’s see how you can earn $5,000 a year in dividends with less than $100,000 in savings.

TSX dividend stock #1

Valued at a market cap of $1.14 billion, Enghouse Systems (TSX:ENGH) develops enterprise software solutions through two segments:

• Interactive Management Group provides contact centre and customer communication management software across voice, video, and digital channels.
• Asset Management Group offers network infrastructure, operations support systems, transit solutions, and enterprise mobility management to telecommunications, utilities, transportation, and government sectors worldwide.

The TSX tech stock is forecast to pay shareholders an annual dividend of $1.08 per share in fiscal 2025 (ending in October), which translates to a yield of almost 5.2%. Moreover, its annual dividend is forecast to increase to $1.40 per share in 2027, raising the effective yield to 6.75%.

Enghouse Systems navigated a challenging quarter, with revenue declining to $125.6 million. The enterprise software provider completed a $3 million restructuring initiative targeting operations, professional services, and administrative functions while preserving its sales organization. Management expects this cost reduction to yield quarterly savings of $2 to $2.5 million going forward, reflecting the company’s focus on aligning expenses with current revenue levels rather than pursuing unprofitable growth.

Recurring revenue remained stable at $87.8 million, representing 70% of total revenue and providing defensive characteristics during the downturn.

The Interactive Management Group segment continues to face headwinds from reduced video collaboration demand as companies mandate return-to-office policies.

Enghouse stock is forecast to increase free cash flow from $130 million in 2024 to $141.8 million in 2027. If the TSX dividend stock is priced at 10 times forward FCF, it could gain more than 40% over the next 18 months. After accounting for dividends, cumulative returns could be closer to 50%.

TSX dividend stock #2

Pizza Pizza Royalty (TSX: PZA) increased same-store sales by 2.1% year over year in the second quarter despite a challenging macro environment. Top-line growth was driven by increases in customer traffic and average check size, with strength in the organic delivery channel that has historically proven difficult to expand.

Management’s brand-building initiatives resonated with consumers, including innovative menu additions like new stuffed-crust flavours and strategic partnerships with professional sports teams.

The company leveraged the momentum of the playoff season through targeted promotions and social media campaigns, while celebrating Pizza 73’s 40th anniversary with community-focused marketing.

Royalty pool system sales increased 3.9% to $161.4 million, generating royalty income of $10.3 million for the quarter. The addition of 20 net new restaurants to the royalty pool on January 1st contributed to this growth alongside same-store sales improvements.

Pizza Pizza’s asset-light model enables it to pay shareholders an annual dividend of $0.93 per share, indicating a yield of roughly 6%. A focus on value messaging, digital innovation, and convenience positioning differentiates it from competitors.

The Foolish takeaway

A total investment of $90,000 split equally between the two TSX stocks should help you earn more than $5,300 in annual dividends. Canadian investors should consider identifying other such fundamentally strong dividend stocks to diversify their portfolio and lower overall risk.