Did you know that you can get a substantial amount of dividend income by investing just $100 per week?
You’ll have to invest those $100 sums consistently over a period of time, of course. But if you stick with it, you can get to the point where you’re making $1,500 in annual dividend income after just three years of diligent saving. In this article, I will explore the numbers behind that and suggest some stocks that could make it happen for you.
$100 per week adds up to $15,600 in three years
The first thing we need to know is how much $100 per week works out to on an annualized basis. There are 52 weeks in a year. That means that, after a full year of saving, $100 per week adds up to $5,200. There is no sensible stock that will get you to $1,500 per year with $5,200 invested — that’s a 28% yield! — but there are stocks that could get you there after three years of saving. That takes you to $15,600 in cumulative savings.
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At $15,600 saved, you need a 10% yield to get $1,500 per year. Although a 10% yield is very high, it’s not so high that a stock yielding that much is necessarily highly risky. I personally hold 10.3% yielder Oaktree Specialty Lending, and if you look at its historical financials and portfolio composition, you will see that it is far from an unusually risky company. That’s one stock you could invest in to get your $1,500 in dividend income, but this being a Canadian publication, we should look at some Canadian stocks that could generate $1,500 in annual dividend income with $15,600 invested.
One stock that could get you there
First National Financial (TSX:FN) is a Canadian non-bank lender with an extraordinarily high yield. At today’s prices, it yields 6.3% — that’s not quite enough to make the math in the previous paragraph work, but it could get there. You see, FN’s dividend has been growing over time. Over the last five years, the company has grown its dividend by 5.3% per year. It has raised the dividend for 12 years in a row. If FN were to keep growing its dividend at 5.3%, then it would reach a 10% yield on cost in eight years. It might sound like a drag to have to wait eight years for a stock to achieve the yield you want, but it needn’t necessarily take that long.
$129 billion in mortgages under administration, up 10%
$563 million in revenue, up 26%
$95.5 million in income minus the effect of fair value changes, up 98%
$83.6 million in net income, up 108%
$1.38 in diluted earnings per share, up 109%
This is much better growth than what First National did over most of the trailing five-year period, in which it grew its earnings at just 7% CAGR. Thanks to high interest rates, FN is growing its earnings more rapidly than it did in the past, when interest rates were low. So, it may be able to deliver dividend hikes at a faster pace going forward. If it does so, then it could become a 10% yielder for those buying it today.
Before you consider First National Financial Corporation, you'll want to hear this.
Our market-beating analyst team just revealed what they believe are the 10 best starter stocks for investors to buy in 2024... and First National Financial Corporation wasn't on the list.
The online investing service they've run for a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 32 percentage points. And right now, they think there are 10 stocks that are better buys.
Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
So, if you invest $100 a week, your equity portfolio would balloon to $5,200 in a year and $26,000 in five years. To earn $1,500 in annual dividend income, you would need to find stocks offering shareholders an average yield of 5.8%.
In a market that generates a 2% annual yield, you would need to invest $600,000 up front in order to reliably generate $12,000 per year (or $1,000 per month) in dividend payments. How Can You Make $1,000 Per Month In Dividends? Here are the steps you can take to build yourself a sufficient dividend portfolio.
This broader mix of stocks offers higher payouts and greater diversification than what you'll get with the Invesco QQQ Trust. And if you've got a large portfolio totaling more than $1.1 million, your dividend income could come in around $50,000 per year.
High-yield savings accounts. Compared to traditional savings accounts, these accounts offer higher interest rates, which can help your money grow faster.
Shareholders in companies with dividend-yielding stocks receive a payment at regular intervals from the company. Companies pay cash dividends on a quarterly basis out of their profits, and all you need to do is own the stock. Dividends are paid per share of stock, so the more shares you own, the higher your payout.
Shares of public companies that split profits with shareholders by paying cash dividends yield between 2% and 6% a year. With that in mind, putting $250,000 into low-yielding dividend stocks or $83,333 into high-yielding shares will get your $500 a month.
A well-constructed dividend portfolio could potentially yield anywhere from 2% to 8% per year. This means that to earn $3,000 monthly from dividend stocks, the required initial investment could range from $450,000 to $1.8 million, depending on the yield.
Investing $100 per month, with an average return rate of 10%, will yield $200,000 after 30 years. Due to compound interest, your investment will yield $535,000 after 40 years. These numbers can grow exponentially with an extra $100. If you make a monthly investment of $200, your 30-year yield will be close to $400,000.
Your Retirement Savings If You Save $100 a Month in a 401(k)
If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.
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.
About $11,900 spread evenly among these stocks is enough to secure $1,000 in annual dividend income. Moreover, there's a good chance they will be able to raise their dividend payments, and your income stream, for many years to come.
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.
The payments are considered passive income since you can collect the dividends whether you trade the stock actively or not. 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%.
Introduction: My name is Jonah Leffler, I am a determined, faithful, outstanding, inexpensive, cheerful, determined, smiling person who loves writing and wants to share my knowledge and understanding with you.
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