Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances.
Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities.
Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. Amy’s work can be found regularly on the Financial Post and MoneyWise Canada.
When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog Finley, and travel.
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We could all use some extra cash right about now. The stock market may have recovered, but another market crash could certainly be on the way. That means finding stable dividend stocks during this volatile period is practically essential.
Lockdowns continue to happen across the country, and the world. This means businesses are likely to see another downturn similar to the beginning of the pandemic. Investors should be on guard for another market crash and looking for stable income. There are a number of dividend stocks out there, but not all are created equal. So if you want to bring in $400 per month, it’s going to take two things. First, a stock that will continue payouts. Second, a fairly large investment.
Consider Telus
There are a number of telecommunications companies out there, butTELUS Corp. (TSX:T)(NYSE:TU) has been at the top lately. That comes down to the company getting ahead of the 5G curve and installing wireline. Now, the company can look forward to bringing in revenue rather than dreading the huge investment.
It’s certainly been working. Many people reconsidered negotiating contracts during the work-from-home economy change. Telus managed to see revenue grow steadily even during the peaks of the pandemic. Most recently revenue rose 4.21% year over year.
Meanwhile, its share price is back at pre-crash levels. But during the last decade, it’s come up about 250%, for a compound annual growth rate (CAGR) of 25% during that time. And, of course, it offers a strong dividend of 4.69% as of writing.
Bring in that cash!
So if you want to bring in monthly income, it will take a fairly significant investment. Let’s say you were to use $70,000 of your Tax-Free Savings Account (TFSA) contribution room. That would bring in $3,297 in annual dividend income from this dividend stock as of writing. That would then equal $274.76 in monthly dividend income!
But let’s take this a step further. The company has continued to grow dividends each year over the last several years, by 8.19% in the last five years alone. So let’s say you were to take that cash and reinvest it until you really needed it. Now you can take that money and put it toward Telus again and again.
Why do this? You now have free cash to put towards the stock and grow an even bigger portfolio. Using the information above, you can figure out where Telus might be in another decade! In this example, we’ll assume it will continue to see share growth of 25%, and dividend growth of 8.19%. That means in another decade your $70,000 investment could be worth $819,441.71. That’s almost a million dollars in a decade!
Foolish takeaway
Yes, we could all use the cash that comes from monthly dividend stocks. But if you don’t need it right away, consider reinvesting that money. It certainly won’t hurt, and could make you a millionaire if you invest properly! The best part is you don’t have to invest in risky stocks. Instead, choose strong companies that will continue to be around paying those dividends for decades to come.
If you want to collect $1,000 in safe monthly dividend income, simply invest $121,000 (split equally, three ways) into the following three ultra-high-yield monthly payers, which are averaging a 9.92% yield.
So, with that in mind, it's essential that you ensure that the dividend stocks you buy for your TFSA are some of the best Canadian stocks on the market. It's far better to buy a reliable stock with a slightly smaller yield than a higher-risk dividend stock that offers a significant yield.
U.S. stocks held in a TFSA are subject to 15% withholding tax on U.S. dividend income. Withholding tax would apply to other foreign stocks held in a TFSA, with rates starting at 15%, depending on the country. Only Canadian stocks are not subject to withholding tax on their dividends inside a TFSA.
To make $3,000 a month from dividend stocks, you'll need to consider the average dividend yield of your portfolio. The average dividend yield is about 5%, so to achieve $36,000 in annual dividend income, you'll need to invest $720,000 (36,000 / 0.05).
How much do you have to invest to get $500 in dividends each and every month? It all depends on your portfolio's dividend yield. With a 10% yield and monthly payout schedule, you can get to $500 a month with only $60,000 invested. That is, $6,000 per year paid on a monthly basis.
Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.
Yes, you can lose money on a TFSA, but it is easy to avoid losing your money. Typically, people who lose their money on a Tax-Free Savings Account are people who are using it for more volatile investments or people who are over-contributing.
Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.
Tax-free growth: Gains from US stocks in a TFSA are not taxed in Canada, allowing for tax-free growth. U.S. withholding tax: Dividends from US stocks are subject to a 15% withholding tax by the U.S. government. This tax is not recoverable within a TFSA.
U.S. citizens who reside in Canada may establish registered accounts such as a RRSP, RESP or TFSA. However, the Canadian tax benefits arising from these registered accounts may potentially be offset by U.S. compliance obligations and/or applicable U.S. taxes.
Assets in a TFSA are not subject to the deemed disposition rules. Earnings in the account or withdrawals made from the account will continue to be exempt from Canadian tax. However, no contributions will be allowed and no contribution room will accrue while you are a non-resident of Canada.
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
The rule of thumb is that you can make about 4% annually off of investments without draining the principal. So if you have $600k you can take out $2,000 a month indefinitely. Of course this is an average, and could go up or down depending on the year, so you might want to have a bit of cushion.
Stocks in the S&P 500 index currently yield about 1.5% on aggregate. That means, if you have $1 million invested in a mutual fund or exchange-traded fund that tracks the index, you could expect annual dividend income of about $15,000.
Stocks in the S&P 500 index currently yield about 1.5% on aggregate. That means, if you have $1 million invested in a mutual fund or exchange-traded fund that tracks the index, you could expect annual dividend income of about $15,000.
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
And the higher that balance gets, the less of a dividend yield you'll need to generate some significant income. If, for example, your portfolio gets to a value of $1.5 million, you could invest in a fund or multiple investments that yield an average of 3.3%. At that rate, you could generate $50,000 in annual dividends.
Three stocks with high-dividend yields of more than 5% that can make for good investments today are Realty Income (NYSE: O), TC Energy (NYSE: TRP), and Western Union (NYSE: WU). If you invest $30,000 across these three stocks, then together, they could generate around $2,000 in annual dividends.
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