Many investors would like to build an investment portfolio that provides regular and growing passive income. Thankfully, finding the right stocks for this is easier than you might think. Focus on companies with a healthy track record, balance sheet, cash flows, and, of course, outlook. This can make your search for a healthy monthly income stream extremely rewarding.
So how much do you need to invest to make $500 per month? And which stocks can help you get there?
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Freehold Royalties
As a Canadian royalty, Freehold Royalties Ltd. (TSX:FRY) has special advantages for investors. Simply put, its royalty model allows investors to gain energy exposure with a lower risk profile.
This is because Freehold does not do its own drilling or exploration. It basically owns a portfolio of mineral titles and royalties on a diversified set of oil and gas properties across North America. These properties have high netbacks, strong production profiles, and are set to benefit from the rapidly expanding liquified natural gas, or LNG, industry.
Freehold Royalties is a dividend stock that’s currently paying a monthly dividend of $0.09 per share. This equates to a very generous dividend yield of 7.2%. Natural gas and oil prices have weakened in the last year, and this has taken Freehold’s payout ratio to 75%, higher than the company’s 60% target. However, it’s important to note that Freehold’s dividend is supported down to $50 oil. Oil is currently trading at more than $57.
Peyto Exploration and Development
Peyto Exploration and Development Corp. (TSX:PEY) is a dividend stock that is currently paying out a dividend of $0.11 per share every month. This translates into a very generous yield of 6.1%. It’s a yield that’s backed by the company’s strong balance sheet, operational profile, and of course, a strong outlook.
Peyto is one of Canada’s lowest cost natural gas producers. The company’s track record of dividend payments is both long and impressive. For example, Peyto has been paying a dividend for more than 20 years. Even in difficult times in the natural gas cycle, the dividend kept coming. And although it has been adjusted depending on the environment, Peyto has kept it as a priority.
This monthly dividend payor is currently facing a very positive outlook. You see, the Canadian natural gas industry is in the process of shifting as LNG Canada is currently ramping up. This ramp up will last some years, and it will bring a demand boost that we haven’t seen since the early 2000’s. This demand boost will benefit Peyto tremendously and it will ensure that its dividends keep coming.
In Peyto’s most recent quarter, production increased 8%, earnings per share (EPS) increased 65%, and funds from operations increased 22%. This was all despite a backdrop of low Canadian natural gas prices and production setbacks due to weather. Imagine what it could do when Canadian natural gas prices are higher.
How to earn $500 in monthly income
In closing, to answer the question, you would need to invest $90,500 in these two stocks in order to make $500 in monthly income. This would set you up with a meaningful passive income stream that you could build on with time.
