When it comes to creating dividend income, investing can be one of the best ways to achieve this. Especially with the market volatility we’re experiencing today. The TSX continues to be down, with the future remaining unclear as to whether we’ll enter a recession or not.
For now, all many investors may notice is that their bills are higher, costs too, and their salary might just remain about the same. With that in mind, creating passive income through dividend investing seems like a great idea.
But be careful
The problem that many investors might fall into is investing in dividend stocks for passive income, only to see their share price drop further and further. This can happen when you fall for the trap of high dividend yields.
A dividend yield is a percentage of the share price given back to investors through dividend income. So if a dividend per share is $2, and a share price is at $30, then that would be a dividend yield of 6.67%. Yet as the share price drops, that dividend yield goes higher and higher. That same dividend stock could see shares drop to $20, and suddenly have a yield at 10%!
That looks great on the surface, but it’s only great if you’re investing in a stock you’re sure is going to turnaround. Which is where the work comes in. However, today I’m going to recommend a stock that continues to offer a substantial dividend yield, but also has the potential of surging back. And that makes it the perfect place to look for $500 in dividends every month.
Northland Power
Northland Power (TSX:NPI) is a monthly dividend stock that would be a great option right now. The company holds a diversified range of renewable energy assets around the world, yet shares have fallen further on lower earnings.
However, Northland stock is now in oversold territory, with analysts believing the stock is due for outperformer status. The dividend stock recently made several moves that will add cash to its full-year 2023 equity funding gap. It now looks able to fund future growth, though that might be more muted given the higher costs in the renewable energy market these days.
That being said, analysts were quick to state that long term, Northland stock has plenty going for it. The company continues to de-risk its offshore wind projects, and that will provide long-term value for investors. Especially as the world continues shifting towards renewable energy.
Creating $500 per month right now
If you’re going to create $500 per month in dividends alone, it’s not going to be a small investment any way you slice it. However, you can at least get a deal on Northland stock right now, with shares down about 30% in the last year.
This is how much you would have to invest then to create $500 per month, or $6,000 per year.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
| NPI | $27.25 | 5,000 | $1.20 | $6,000 | monthly | $136,250 |
That’s a huge investment into one stock. So now let’s look at this from another angle. What if you were looking for $500 per month in passive income. That’s taking both dividends and returns into consideration. That would mean in the next year, you would need to see your dividends and returns alone add up to $6,000.
Let’s say your shares return to 52-week highs. That would create a potential upside of 73% as of writing! With that in mind, here is how you could create $6,000 in dividends and returns for passive income in the next year.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
| NPI | $27.25 | 285 | $1.20 | $342 | monthly | $7,766.25 |
| NPI – high | $47.13 | 285 | $1.20 | $342 | monthly | $13,432.05 |
As you can see, taking the original $7,766.25 investment away from your total at the end of a year, and adding in your annual passive income, you’ll have returns of $6,007.80. That would give you just over $500 per month in passive income.
