Passive Income: Earn $500/Month From 1 Top Dividend Stock

Passive income can turn you from losing money each year, to making half a million in two decades. This is a top stock to get you there.

| More on:

Bad news everyone, Canadians love to spend. We continue to spend far more than we earn. According to Statistics Canada, the median after-tax income earned by households is about $62,900 per year as of 2019. However, Canadians spend an average of $68,980! That’s $6,080 more than what they actually earn, after taxes.

So, how are Canadians going to make up that significant amount of income lost? Even more concerning, how are Canadians going to have any savings if they’re spending so much? The key: passive income.

Passive income: savings and spending

Passive income is one of the best and easiest ways to bridge the gap between what you need to spend, and what you need to save. Whether it’s a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) or anything else, passive income can create wealth even without investments moving an inch.

The key is to find the right investment. In the case of passive income, you want to find Canadian companies that produce a big dividend. As fellow Fool writer Kay Ng explains, “you’re getting a big dividend if the stock yields 1.5 to two times the market benchmark’s yield. The Canadian stock market yields about 2.55% at writing. So, a big dividend would yield 3.8% to 5.1%.”

A strong option

The Big Six Banks are some of the easiest places to find big dividends. In fact, most just boosted their dividends this past month. This comes with rising interest rates, coupled with inflation. The Big Six Banks did well during the pandemic, soaring back to pre-pandemic levels and beyond within a year. Yet passive income remained stagnant.

This includes Toronto-Dominion Bank (TSX:TD)(NYSE:TD). TD stock is one of the largest banks by market capitalization at $176 billion, as of writing. It’s also one of the most diversified, with large exposure to the U.S. In fact, it’s started to close some of its U.S. locations despite its success, now focusing on its online presence.

TD stock also has the most credit card partnerships, and loan repayment plans. Both of these were impacted by the pandemic in a positive way. This allows the company to bring in wealth no matter what financial background you have. This year was great for banks like TD stock, and it still could be great in 2022 with up to $19 billion on the books for investment. Next year may be more muted, and so will the future. That’s why you should really be paying attention to its 13% dividend boost for passive income seekers.

Bring on the passive income

TD stock offers investors a dividend yield of 3.67% after its recent dividend boost. To bring in $500, it would take a significant investment. You would need to purchase 1,685 shares for a grand total of $163,483 as of writing. Now, you don’t have to do this right away. If you wanted, you could start with a smaller amount and reinvest your passive income to get to that level. That way, you keep your funds safe, bulk up savings, but have it available in the event of a downturn.

In this case, let’s say you could invest $25,000 today and reinvested your dividends along the way. Then, you saw the average historical growth of the last two decades. As of writing, you could reach a portfolio of $164,330.72 in 12 years. If you continue to invest, within 20 years you would have half a million dollars.

How’s that for savings?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe owns TORONTO-DOMINION BANK. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

Man data analyze
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $400 Per Month?

Here's some passive-income math to get your journey to financial freedom started.

Read more »

Asset Management
Dividend Stocks

A 10% Dividend Yield Today! But Here’s Why I’m Buying This TSX Stock for the Long Term 

A 10% dividend yield stock has risks in the short term but growth in the long term. This stock is…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

The Safest Dividend Stocks That Could Pay Big Bucks Forever

These two safe Canadian Dividend Aristocrats could help you earn safe income for decades to come.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

2 High-Yield Dividend ETFs to Buy to Generate Passive Income

High-yield dividend ETFs can be major winners in any portfolio, offering diversification, returns, and security. But which are the best?

Read more »

jar with coins and plant
Dividend Stocks

Want $97 in Super-Safe Monthly Dividend Income? Invest $15,000 in These 3 Ultra-High-Yield Stocks 

Do you have a lump sum amount and are worried you will spend it all? Consider investing in dividend stocks…

Read more »

woman looks out at horizon
Dividend Stocks

Top Picks: 3 Canadian Dividend Stocks for Stress-Free Passive Income

Do you want passive income? These three offer not just strong passive income now, but a large future opportunity for…

Read more »

hand stacking money coins
Dividend Stocks

Invest $500 Per Month to Create $335 in Passive Income in 2025

By investing $500 per month into a high yield stock like First National Financial (TSX:FN), you could get $337 in…

Read more »

The sun sets behind a power source
Dividend Stocks

Fortis Stock: Buy, Sell, or Hold?

Fortis has delivered attractive long-term total returns for investors.

Read more »