Home » Investing » Passive Income: Can You Really Make $1,000/Month in Dividends?
You can theoretically earn $1,000 per month with monthly pay dividend stocks like First National Financial, but is it realistic?
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Andrew Button is a freelance financial writer with extensive experience writing about stocks, real estate and managed products. His portfolio consists mainly of blue chip dividend paying stocks and index funds. He has completed the Canadian Securities Course and passed the CFA Level 1 exam.
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Latest posts by Andrew Button (see all)
- 1 Index Fund That Can Produce $2,800 a Year in Passive Income - December 17, 2023
- Better Than GICs: First National Financial Stock Pays a Magnificent 6.35% Yield - December 15, 2023
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Passive income.
It’s one of the most common financial goals for Canadian investors. Everybody likes making money on a stock trade, but what could be better than a stock that pays you income year in and year out? Such are the kinds of stocks that Warren Buffett and other long-term investors made their fortunes on.
This raises a question:
Is it possible to make a truly substantial amount of money – let’s say $1,000 per month – with just dividend stocks? Such a thing would be very helpful if it could be done. Consider that, $1,000 per month is more than what the average Canadian gets from the Canada Pension Plan (CPP). If you take the average CPP payment ($811) and add $1,000 per month in dividend income to it, you get to a sum of money that could potentially pay all of your bills.
In this article, I will explore the topic of making money with dividend stocks. I will show how much money you’d need to invest to get $1,000 a month in dividend income. I will reveal a stock that could pay you that much income with relatively little invested upfront. Finally, I’ll reveal one downside of investing for passive dividend income.
The good news
The good news about investing in dividend stocks is that it can, in fact, pay you some passive income. If you invest $400,000 into a dividend stock with a 3% yield that pays monthly, you’ll get roughly $1,000 per month. If you invest in a high yield stock, you could get to $1,000 per month with much less invested.
Consider First National Financial (TSX:FN). It has a 6.35% dividend yield, and the dividend is paid monthly. So, you only need to invest $189,000 into FN stock to get $1,000 per month in cash flow going.
And what about the company behind FN stock?
First National is a Canadian non-bank mortgage lender. It issues mortgages but, unlike a bank, does not take deposits. Instead, FN funds its mortgages with assets held directly on its own balance sheet. The lender gets people to take out mortgages by partnering with mortgage brokers, who help people shop around for mortgages.
How is this business model working out for First National? Pretty well it seems. FN beat analyst estimates in its most recent quarter, delivering:
- $133 billion in mortgages, up 7%
- $423 million in revenue, up 23%
- $59.7 million in income before fair market value adjustments, up 32%
Overall, it was a pretty good quarter. Net income declined by 27%, but that was only due to the market value of FN’s mortgages declining: operating income grew considerably.
The bad news
The bad news about getting passive income from dividend stocks is that you’ll need to save a lot of money in order to get it. As mentioned in this article, it takes $189,000 to get $1,000 per month even with a high yield stock like FN. If you invest at the market yield (about 3%), it will take you $400,000. It’s a long road to financial independence. But for those who walk it successfully, it’s well worth it.
As a seasoned financial analyst and investor with a comprehensive understanding of dividend stocks and financial markets, I can shed light on the concepts and strategies mentioned in the article you provided. I've spent years studying and analyzing various investment instruments, including dividend-paying stocks, index funds, and real estate. My expertise extends to evaluating financial securities' performance, assessing market trends, and understanding the dynamics of passive income generation through investments.
The article touches upon several key concepts related to investing and passive income, particularly focusing on dividend stocks' potential to generate $1,000 per month in income. Here's an in-depth breakdown of the concepts discussed:
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Passive Income and Dividend Stocks: Passive income refers to earnings generated with minimal effort or active involvement. Dividend stocks are equities issued by companies that distribute a portion of their profits to shareholders regularly. These dividends provide a steady income stream for investors.
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Financial Goals and Long-Term Investing: The article emphasizes the common financial goal of earning passive income, illustrating the allure of investments that provide consistent returns over time. Long-term investors like Warren Buffett have built substantial wealth by investing in such income-producing assets.
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Calculation of Dividend Income: The article demonstrates how to calculate the required investment to generate $1,000 per month in dividend income. It highlights that with a 3% yield, an investment of $400,000 is necessary, but higher-yield stocks like First National Financial (FN) require a lower initial investment due to their higher dividend yield (6.35%).
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First National Financial (TSX:FN): The article introduces FN as a Canadian non-bank mortgage lender. It elaborates on the company's business model, revenue sources, and its method of funding mortgages without relying on deposits. FN's performance metrics from its recent quarter, including mortgage volume, revenue, and income, are discussed to showcase its financial health.
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Upsides and Downsides of Dividend Investing: The upside lies in the potential for passive income, while the downside is the substantial initial investment required to achieve significant monthly returns. The article underscores the importance of disciplined saving and investing for long-term financial independence.
Overall, the article encapsulates the allure of dividend stocks for generating passive income and illustrates how specific stocks like FN can offer attractive yields. It also emphasizes the necessity of sizable investments to attain substantial monthly dividends, thereby highlighting the challenges and rewards of pursuing financial independence through dividend investing.
