Passive Income: How Much Do You Need to Invest to Make $500 Per Month?

Are you wondering how much cash you would need to earn $500 per month in passive income? Here are some tips on how to elevate passive-income returns.

| More on:
Man data analyze

Image source: Getty Images

The stock market is a great place to build a passive-income stream. You can build a diversified portfolio of stocks from a wide mix of asset classes and industries.

Unlike other passive-income alternatives (like real estate or side hustles), there is no management or labour required to invest. Of course, some effort/time is required to analyze the companies you wish to buy, but that is the extent of the work required.

Collect income and capital returns from dividend stocks

If you pick companies with quality assets, great services, and smart executives, you can stand to earn both passive income and capital gain returns.

So, say you want to earn an average of $500 of passive income per month from owning dividend stocks. How much cash do you need to invest? Well, that really depends on the dividend yield you expect.

How much cash do you need to earn $6,000/year of passive income?

If you divide your required annual income stream (in this case, $6,000) by your expected average yield, you can calculate how much cash you would need to invest. The type of yield you expect to earn often relates to the amount of risk you are willing to take. Often, as a dividend yield rises, so too does the risk.

Stocks with large dividend yields (like over 8%) often have significant business challenges. The market fears these challenges, so it prices the stock down and raises the yield. Unless you have a special edge on the specific company, it is best to avoid these types of high-dividend stocks.

Look for a yield between 3% and 6%

Stocks in the 3-6% range offer a lower level of risk and a better prospect that the dividend will be sustained (or even grow). If you average a 3% portfolio yield, you will need $200,000 to earn $500 per month.

If you average a 6% portfolio yield, you will need half that amount ($100,000) invested to earn $500 per month. Chances are you would likely end up somewhere in the middle with a yield of 4-5%. You would need between $120,000 and $150,000 invested.

If you are looking for some passive-income stocks in that yield range, these ideas are interesting.

A solid real estate stock for passive income

Created with Highcharts 11.4.3Granite Real Estate Investment Trust PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Granite Real Estate Investment Trust (TSX:GRT.UN) stock earns a 4.8% yield today. Granite owns large e-commerce, logistics, and manufacturing properties across Canada, the United States, and Europe. It has infrastructure-like assets with long-term leases (plus six years on average), solid 95% occupancy, and high-grade tenants.

The company has delivered strong, high single-digit cash flow per share growth in the past few years. It has a top management team and a well-managed, low-debt balance sheet.

Its distribution has increased for 14 consecutive years. It’s a safe bet for passive income. It also helps that the stock is cheap today.

An infrastructure stock with a nice yield

Created with Highcharts 11.4.3Pembina Pipeline PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Pembina Pipeline (TSX:PPL) stock yields 5.3%. It operates a diversified energy infrastructure business across Western Canada.

Pembina provides energy producers with essential processing, transport, egress, and export services. In many instances, it is the only way producers can get their products to market.

As a result, a large mix of its business is on long-term contracts. This business has proven resilient, even through the worst energy downturns. Even when oil was temporarily priced below zero, Pembina continued to pay its dividend.

The company has a strong balance sheet and long-term growth prospects. Strong free cash flow generation has supported dividend growth in the past few years.

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 Robin Brown has no position in any of the stocks mentioned. The Motley Fool recommends Granite Real Estate Investment Trust and Pembina Pipeline. The Motley Fool has a disclosure policy.

More on Dividend Stocks

happy woman throws cash
Dividend Stocks

This 9% Dividend Stock Pays Cash Every Month

Do you need some extra cash on hand? This dividend stock looks like a winner.

Read more »

dividends grow over time
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month!

Grab on to monthly dividends with this undervalued dividend stock offering years of income.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

4 Secrets of TFSA Millionaires

The supposed secrets of TFSA millionaires are out in the open; just follow them and be one, too.

Read more »

Canadian dollars are printed
Dividend Stocks

Got $25,000? Transform Your TFSA Into a Cash-Gushing Machine

These two stocks may be down slightly but are in stable sectors only due to rise. And with these dividends?…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

2 Unbeatable Dividend Stocks to Buy if the Market Goes Down

These two renewable energy stocks offer major wins for investors, especially those looking for passive income.

Read more »

ETF chart stocks
Dividend Stocks

These ETFs Are My 2 Favourites to Buy for 2025

These two top ETFs may be going through some volatility right now, but both are due for huge returns in…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

3 Blue-Chip Dividend Stocks Every Canadian Should Own

These blue-chip dividend stocks have solid fundamentals and growing earnings bases that support their payouts.

Read more »

cloud computing
Dividend Stocks

What to Know About Canadian Technology Stocks for 2025

The tariff developments, thanks to a new president south of the border, might have a say in how Canadians should…

Read more »