Claim Membership Credit
Are you aiming to hit $5,000 per year in passive income?
It could take some time to get there, but it’s very doable. A $100,000 portfolio with a 5% dividend yield produces $5,000 in dividends per year — assuming that the dividend payout does not change. A number of factors can cause dividend payouts to change over time. Companies that perform well often raise their dividends while struggling companies often reduce or eliminate theirs.
In this article, I will explore one relatively safe TSX stock that can pay you $5,000 worth of passive income per year with just $100,000 invested.
TD Bank
Toronto-Dominion Bank (TSX:TD) is a Canadian bank stock that pays $4.08 in annual dividends per share. At today’s price of $80.60, it takes 1,225 shares of TD Bank to get to $5,000 in annual passive income. Over the last five years, TD has raised its dividend at a rate of about 7.6% per year. It already has a high yield today, and if it keeps up the momentum, it will have an even higher yield going forward.
How much dividend income you could earn
TD has the potential to pay out a lot of dividend income. With its 5% dividend yield, it takes $100,000 invested into TD stock to get to $5,000 in annual passive dividend income. If you invest less than $100,000 into the stock and it continues hiking its dividend income, you may still get to $5,000 per year in income. Below you can see a table establishing that a $100,000 investment in TD produces $5,000 in dividend income at today’s stock price and dividend payout.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Toronto-Dominion Bank | $80.60 | 1,225 | $1.02 per quarter ($4.08 per year) | $1,249.50 per quarter ($5,000 per year) | Quarterly |
Is TD a good stock otherwise?
As we’ve seen, it does not take a lot of money invested into TD Bank stock to get $5,000 per year in dividends. Just 1,225 shares can get you to your goal. That does not necessarily mean that the stock is a good investment though. Simply buying stocks based on their dividend yields can result in poor investment performance. We need to look at TD’s overall business to determine whether it’s worth buying.
On the whole, TD is a very profitable company. It has a 24% net margin and a 10.7% return on equity. Both of these figures are above average.
The company also has delivered decent historical growth. In the last 12 months, revenue grew 5% while earnings declined. The earnings decline was mostly due to non-recurring factors pertaining to the cancellation of the bank’s ill-fated First Horizon deal. Adjusted earnings increased last quarter. The company’s earnings have compounded at 6% per year over the last 10 years — more than that if you go with adjusted earnings instead of reported earnings.
Finally, TD has some good growth catalysts that could spur growth in the year ahead. It recently concluded purchasing the U.S. investment bank Cowen, which has expertise in tech, including the artificial intelligence tech companies that are dominating the markets this year. The bank also has the potential to profit off of rising interest rates (it is a lender after all), especially if the yield curve finally un-inverts.
Foolish takeaway
All in all, TD Bank appears to be a decent income stock. It has a high yield, solid profit margins, and some decent growth catalysts. It’s a good stock for any Canadian income portfolio.
