How to Earn $2,000 in Passive Income in 2025 With Less Than $51,000 in Savings

You can invest in Canadian high yield stocks via the Vanguard FTSE Canadian High Yield Dividend ETF (TSX:VDY).

| More on:
ETF stands for Exchange Traded Fund

Source: Getty Images

Do you want to earn $2,000 in annual passive income? It might sound like something tough to pull off, but in truth, you can do it with less than $51,000 in savings. If you invest $51,000 at an average dividend yield of 3.95%, you will get more than $2,000 in annual dividend income. In this article, I will explore how you can safely achieve such a yield and get $2,000 per year in tax-free passive income in your TFSA or RRSP.

Invest in Canadian dividend stocks

Investing in Canadian dividend stocks is a great way to get some extra passive income coming into your account every quarter – sometimes every month. The Canadian market has a higher dividend yield than its U.S. counterparts, due to the fact that it is disproportionately weighted in high yield sectors like banking, energy, and utilities. This makes the Canadian market an excellent one to invest in if you’re after some yield.

As for how to get that Canadian dividend representation in your portfolio: it pays to invest in exchange-traded funds (ETFs). ETFs are pooled investment vehicles that buy large portfolios of stocks, providing you with portfolio diversification. Diversification lowers your risk by “spreading your eggs across many baskets.” As a result, you are less likely to lose money investing in an ETF compared to a randomly chosen individual stock.

Consider the Vanguard FTSE Canadian High Yield Dividend ETF (TSX:VDY) for example. It’s an ETF offered by Vanguard that invests in high yield Canadian stocks. The fund pays a $0.16 distribution monthly, which means $1.92 per year. At today’s price of $48.64, these dividends provide a 3.95% dividend yield.

How much do you need to invest to get to $2,000 in annual passive income with $1.92 in annual dividends per $48.64 share? A little under $51,000, as the table below shows.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
VDY ETF$48.641,042 shares costing approximately $50,683.$0.16 per month ($1.92 per year).$166.72 per month ($2,000.64 per year).Monthly
VDY dividend math

Now, of course, you shouldn’t invest all of your money in VDY just because it has a high dividend yield. You need other reasons to invest in the fund. Thankfully, VDY has much more to recommend it than just dividends. It’s highly diversified, with 54 stocks. It has a 15.2 price-to-earnings (P/E) ratio and a 1.7 price-to-book (P/B) ratio, both of which indicate relative cheapness. Finally, the stocks in the portfolio have a 12.4% return on equity and an 8.3% earnings growth rate, indicating that they are performing well. Overall, VDY appears to be a quality ETF.

Foolish takeaway

There you have it. It takes $50,683 invested at a 3.95% dividend yield to get $2,000 in annual dividend income. That’s not a whole lot of money to invest, all things considered. And if you get your 3.95% yield in the form of Vanguard’s High Yield Canada ETF, you will get your income coming in each and every month! Overall, it’s an investment worth considering as we approach the closing days of 2024 and prepare for the new year.

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 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.

More on Dividend Stocks

monthly desk calendar
Dividend Stocks

This 7.8% Dividend Stock Pays Out Every Month

Not all monthly dividend stocks are created equal. And this top stock is certainly a strong choice for passive income.

Read more »

A worker gives a business presentation.
Dividend Stocks

Is TMX Group Stock a Buy, Sell, or Hold for 2025?

TMX Group (TSX:X) stock has been a consistent wealth-builder, generating 4,630% in total returns since 2002. Should you buy, sell,…

Read more »

Man data analyze
Dividend Stocks

2 Deeply Undervalued Dividend Stocks to Buy in November

Here are two stocks that I view as deeply undervalued this November.

Read more »

Dividend Stocks

The 2 Best Canadian Blue-Chip Stocks to Buy Now

Blue-chip stocks can be some of the best stocks to have in any portfolio. But when they're trending upwards, investors…

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These top dividends stocks have consistently paid and increased their dividends. Further, this trend will continue.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »