If you have $7,000 to invest, dividend stocks can turn that lump sum into a growing stream of passive income. But how much could $7,000 actually pay you each year?
The answer depends heavily on the stocks you choose. A diversified Canadian dividend exchange-traded fund (ETF) could provide a relatively dependable starting point, while carefully selected higher-yielding stocks could generate substantially more income — but with greater risk.
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A diversified option could pay about $217 a year
One straightforward approach would be to invest $7,000 in iShares Core MSCI Canadian Quality Dividend Index ETF (TSX: XDIV). At a distribution yield of roughly 3.1%, that investment would generate approximately $217 in annual income.
XDIV gives investors exposure to a basket of Canadian dividend-paying companies, providing more diversification than if you buy a few stocks. The fund holds about 20 companies, including major positions, about 9% to 9.5% of the fund in each of: Toronto-Dominion Bank, Suncor Energy, Canadian Natural Resources, Manulife Financial, and Royal Bank of Canada.
The ETF focuses on companies with above-average dividend yields and relatively strong financial characteristics, including solid balance sheets and less volatile earnings. It also has a relatively low management expense ratio of 0.11%, making it an inexpensive way to build diversified dividend exposure.
However, investors looking to squeeze more income from $7,000 could consider individual dividend stocks.
Higher yields could mean more income
Enbridge (TSX: ENB) is one example. With a dividend yield of roughly 5.8%, a $7,000 investment would produce about $406 in annual dividend income.
The energy infrastructure giant benefits from predictable cash flows generated by regulated assets and long-term commercial contracts. That helps support its dividend, which Enbridge has paid for more than 70 years and increased for roughly three decades. Its most recent increase was around 3%.
Of course, investors should not chase higher yields blindly. Instead, they should still consider valuation, debt, cash flow, and the sustainability of future dividend increases before buying.
Enbridge’s recent pullback may be a combination of valuation normalization, expectation of an upcoming interest rate hike, and its September bought-deal equity offering at $66.85 per share.
Another option for income is Brookfield Infrastructure Partners, which currently offers a yield of about 5.1%. Investing $7,000 would generate approximately $357 annually.
Brookfield Infrastructure owns and operates infrastructure globally across utilities, transportation, energy, and data. Its strategy involves acquiring quality assets, improving their operations, and recycling mature investments to fund new opportunities.
The company targets long-term funds-from-operations growth of more than 10% annually and distribution growth of 5% to 9%.
What could $7,000 ultimately pay?
Splitting $7,000 equally between Enbridge and Brookfield Infrastructure would produce roughly $381.50 in annual income based on the above yields — significantly more than the approximately $217 from XDIV.
The trade-off is diversification and risk. XDIV spreads an investment across a basket of companies, while individual stocks can deliver higher income but expose investors to greater company-specific risks.
For income-focused investors, the idea is simple: $7,000 won’t make you rich overnight, but putting it to work in quality Canadian dividend stocks could create a meaningful income stream today while potentially giving that income room to grow over time.
