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%.
Let's also be realistic here, $50,000 per year in passive income from dividends requires a substantial portfolio. at an average 5% yield an investor will need $1 million in dividend bearing stocks to create $50K in income yearly.
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.
The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets.
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. Although, most dividends are paid quarterly, semi-annually or annually.
If you're looking to generate $300 in super safe monthly dividend income (note the emphasis on "monthly" income), simply invest $43,000, split equally, into the following two ultra-high-yield stocks, which sport an average yield of 8.39%!
Too many people are paid a lot of money to tell investors that yields like that are impossible. But the truth is you can get a 9.5% yield today--and even more. But even at 9.5%, we're talking about a middle-class income of $4,000 per month on an investment of just a touch over $500K.
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.
As long as you keep the withdrawal rate at or below 4%, your money should last for decades. To apply the 4% rule, divide your income requirement by 4% to calculate your targeted portfolio size. If $75,000 is your income requirement, for example, you can safely get it from a $1.87 million portfolio.
In a new report, the Milken Institute recommends that Americans start investing for their retirement at age 25. Saving $100 a week as of that tender age will, by the power of compounding, yield $1.1 million by age 65 (assuming a 7% annual rate of return).
According to Ramsey's tweet, investing $100 per month for 40 years gives you an account value of $1,176,000. Ramsey's assumptions include a 12% annual rate of return, which some critics have labeled as optimistic given that the long-term average annual return of the S&P 500 index is closer to 10%.
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.
Investing your $100 can be pivotal in generating passive income, preparing for financial uncertainties, and achieving long-term goals. The magic of compound interest implies that even modest sums can snowball over time.
Introduction: My name is Kelle Weber, I am a magnificent, enchanting, fair, joyous, light, determined, joyous person who loves writing and wants to share my knowledge and understanding with you.
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