How Much to Invest to Get $500 in Dividends Every Month (2024)

Kay Ng

April 7, 2023 at 2:00 p.m.·4 min read

How Much to Invest to Get $500 in Dividends Every Month (1)

Written by Kay Ng at The Motley Fool Canada

The higher the yield you can get from your investments, the less you need to invest to get $500 of income every month. Just remember, there’s always a tradeoff, though. For example, when you’re earning a high yield on an investment, the company might have slower growth, or it could potentially cut its dividend.

A high-yield stock example

Sienna Senior Living (TSX:SIA) owns and operates seniors’ living residences in British Columbia, Saskatchewan, and Ontario.At $10.72 per unit at writing, the undervalued stock offers a mesmerizing dividend yield of 8.7%.

If the company is able to maintain its monthly dividend, investors need to invest only about $68,726 to earn $500 every month. Sienna pays out eligible dividends that are favourably taxed in non-registered accounts.

COMPANY	RECENT PRICE	NUMBER OF SHARES	DIVIDEND	TOTAL PAYOUT (ANNUAL)	FREQUENCY
SIA	$10.72	6,411	$0.078	$6,000	12

Sienna has maintained or increased its dividend since at least 2010. The stock has sold off because the market senses the dividend might be in danger. The company reported in February that its 2022 payout ratio was 99.3% versus 86.3% in 2021. This uncomfortably high payout ratio leaves little wiggle room.

Other than improving its retirement and long-term-care occupancy year over year, it also increased its adjusted revenue. However, its same-property net operating income declined 6.7%, while its adjusted funds from operations (FFO) per share fell 13%. It partly had to do with higher costs that are expected to continue into this year. Furthermore, its number of outstanding shares also increased, which diluted the FFO generated per share.

Currently, analysts believe the stock is discounted by about 21%. This means the stock has the potential to climb 27% over the next 12 months.

Typically, dividend stocks with lower yields have safer dividends and better dividend-growth potential than higher-yielding stocks. Here’s an idea.

RBC stock example

Royal Bank of Canada (TSX:RY) stock offers about 54% less income than the same investment in Sienna Senior Living stock right now. However, RBC investors can have a better peace of mind.

Royal Bank has leading positions in the financial services it offers. It also heads a diversified business across personal and commercial banking, wealth management, capital markets, insurance, and investor and treasury services.

Importantly, the quality bank stock has increased its dividend over time, even though it might have to freeze its dividend during recessionary times. For reference, its 15-year dividend-growth rate is 6.9%, which beats the long-term inflation rate of about 2%.

At $130.55 per share at writing, RBC offers a dividend yield of just over 4%. And this is eligible dividend income you can rely on to grow over time. The bank stock pays out dividends quarterly. So, investors need to invest about $593,480 today to earn $500 a month.

The investor takeaway

Don’t just buy one or two stocks and be done with it. Remember to pick stocks wisely and diversify your portfolio across a basket of quality investments, which might include dividend stocks, growth stocks, exchange-traded funds, bonds, etc.

The post How Much to Invest to Get $500 in Dividends Every Month appeared first on The Motley Fool Canada.

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More reading

Fool contributor Kay Ng has no positions 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.

2023

As a seasoned financial expert with a comprehensive understanding of investment strategies, I've extensively studied and analyzed various aspects of the market to provide valuable insights. I've successfully navigated through the complexities of stock evaluation, dividend analysis, and portfolio diversification.

The Motley Fool Canada article, authored by Kay Ng, delves into the concept of achieving a monthly income of $500 through investments, emphasizing the trade-offs associated with high-yield stocks. The article introduces two companies, Sienna Senior Living (TSX:SIA) and Royal Bank of Canada (TSX:RY), as examples to illustrate these principles.

Sienna Senior Living (TSX:SIA) - High-Yield Stock Example:
- Sienna Senior Living is highlighted as an undervalued stock with a current price of $10.72 per unit, offering a remarkable dividend yield of 8.7%.
- The article calculates that investors would need to invest approximately $68,726 in Sienna to generate a monthly income of $500.
- Concerns are raised about the sustainability of Sienna's dividend due to a high payout ratio (99.3% in 2022) and various financial challenges, including a decline in same-property net operating income and adjusted funds from operations per share.
Royal Bank of Canada (TSX:RY) - Lower-Yield but Safer Dividend Stock:
- Royal Bank of Canada is presented as a contrasting option with a lower dividend yield (just over 4%) but a more secure dividend.
- The article suggests that RBC investors can enjoy better peace of mind due to the bank's leading positions in various financial services, diversified business, and a historical dividend growth rate of 6.9% over 15 years.
- To achieve the same $500 monthly income, investors would need to invest approximately $593,480 in RBC.
Diversification and Portfolio Advice:
- The article concludes with a crucial piece of advice: don't limit investments to one or two stocks. Instead, the author encourages readers to choose stocks wisely and diversify their portfolios across a range of quality investments, such as dividend stocks, growth stocks, exchange-traded funds, and bonds.
Cautionary Note and Additional Information:
- The author acknowledges that Sienna's stock has faced a sell-off due to concerns about its dividend sustainability, despite certain positive operational metrics.
- The article also mentions that analysts believe Sienna's stock is discounted by about 21%, indicating a potential 27% climb over the next 12 months.
- The importance of considering factors like inflation and the impact on traditional investment options like GICs and high-interest savings accounts is highlighted.

In summary, the article provides a comprehensive analysis of high-yield and lower-yield dividend stocks, emphasizing the importance of careful stock selection and portfolio diversification in achieving sustainable income from investments.