Passive income is something every investor is interested in, especially right now. Today, I’m going to show you just how much you can lock in — first, by investing to create $500 per year and eventually moving up to $500 per month.
Find the right stock
If you’re looking for a passive-income stock, you’ll want a strong, monthly payer that’s bound to be around within the next decade. Today, I’m going to focus on Peyto Exploration & Development ( TSX:PEY ). The main reason? The company has an incredibly high dividend yield at 10.73% as of writing. Yet it remains in value territory trading at 6.3 times earnings.
Of course, part of the reason this stock has a high yield and cheap price is, it’s in the oil and gas sector. This sector had a wild ride in the last year, but the company is starting to show improvements in the last few months. Passive-income seekers wanting more returns and a lock-up of this yield should do so soon.
Start off with $500 per year
To start, let’s say you’re an investor who wants to create $500 in passive income each year. Right now, Peyto stock’s 10.73% dividend yield comes to $1.32 per share annually. This would mean to create $500 in income annually, you would need about 378 shares.
Here’s how that works out below in terms of how much you would need to invest as well.
COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
PEY | $12.59 | 378 | $1.32 | $500 | Annually | $4,759.02 |
As you can see, to create that $500 per year, an investment of $4,759 doesn’t really break the bank. However, it might if you’re seeking $500 per month . Let’s look at how much you’d need to invest to get there.
COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
PEY | $12.59 | 4,545 | $1.32 | $500 | Monthly | $57,221.55 |
Making it monthly
As you can see, that’s a far larger investment. Now, if you were to reinvest that $500 each year, let’s see how long it would take to reach $500 per month in passive income. From there, you decide to put an additional $1,500 into Peyto stock. Based on its historical data, it would take 23 years to reach $6,003 in annual passive income, or $500 each month.
Year | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Shares Owned | Year End Stock Price | New Balance |
1 | 378 | $1.34 | $505.41 | $5,289.77 | $1,500.00 | 523.71 | $13.94 | $7,298.98 |
2 | 523.71 | $1.36 | $714.23 | $8,046.14 | $1,500.00 | 669.36 | $15.43 | $10,327.13 |
3 | 669.36 | $1.39 | $931.13 | $11,297.71 | $1,500.00 | 814.01 | $17.08 | $13,902.72 |
4 | 814.01 | $1.42 | $1,155.00 | $15,102.73 | $1,500.00 | 956.82 | $18.91 | $18,090.32 |
5 | 956.82 | $1.45 | $1,384.78 | $19,524.73 | $1,500.00 | 1097.02 | $20.93 | $22,960.39 |
6 | 1097.02 | $1.48 | $1,619.45 | $24,633.23 | $1,500.00 | 1233.96 | $23.17 | $28,589.99 |
7 | 1233.96 | $1.51 | $1,858.03 | $30,504.39 | $1,500.00 | 1367.09 | $25.65 | $35,063.51 |
8 | 1367.09 | $1.54 | $2,099.65 | $37,221.76 | $1,500.00 | 1495.93 | $28.39 | $42,473.56 |
9 | 1495.93 | $1.57 | $2,343.49 | $44,877.23 | $1,500.00 | 1620.13 | $31.43 | $50,921.91 |
10 | 1620.13 | $1.60 | $2,588.82 | $53,571.91 | $1,500.00 | 1739.41 | $34.79 | $60,520.55 |
11 | 1739.41 | $1.63 | $2,835.00 | $63,417.22 | $1,500.00 | 1853.56 | $38.52 | $71,392.92 |
12 | 1853.56 | $1.66 | $3,081.47 | $74,536.08 | $1,500.00 | 1962.45 | $42.64 | $83,675.13 |
13 | 1962.45 | $1.70 | $3,327.76 | $87,064.22 | $1,500.00 | 2066.03 | $47.20 | $97,517.45 |
14 | 2066.03 | $1.73 | $3,573.47 | $101,151.56 | $1,500.00 | 2164.29 | $52.25 | $113,085.92 |
15 | 2164.29 | $1.76 | $3,818.29 | $116,963.86 | $1,500.00 | 2257.27 | $57.84 | $130,564.05 |
16 | 2257.27 | $1.80 | $4,061.97 | $134,684.44 | $1,500.00 | 2345.05 | $64.03 | $150,154.80 |
17 | 2345.05 | $1.84 | $4,304.32 | $154,516.12 | $1,500.00 | 2427.74 | $70.88 | $172,082.69 |
18 | 2427.74 | $1.87 | $4,545.22 | $176,683.34 | $1,500.00 | 2505.49 | $78.47 | $196,596.19 |
19 | 2505.49 | $1.91 | $4,784.60 | $201,434.52 | $1,500.00 | 2578.46 | $86.86 | $223,970.31 |
20 | 2578.46 | $1.95 | $5,022.42 | $229,044.68 | $1,500.00 | 2646.83 | $96.16 | $254,509.50 |
21 | 2646.83 | $1.99 | $5,258.71 | $259,818.30 | $1,500.00 | 2710.79 | $106.45 | $288,550.82 |
22 | 2710.79 | $2.03 | $5,493.52 | $294,092.52 | $1,500.00 | 2770.55 | $117.83 | $326,467.46 |
23 | 2770.55 | $2.07 | $5,726.91 | $332,240.64 | $1,500.00 | 2826.31 | $130.44 | $368,672.66 |
You’ll also notice you now have a portfolio worth $368,672.66 based on this historical performance! In the case of Peyto stock, I want to mention that this company has cut its dividend in the past. So, I wouldn’t exactly call it the safest and most secure investment for dividend passive income. That being said, it’s a great example to show how you can lock up long-term passive income for years.
The post How to Generate $500 in Passive Income and $368K in Returns appeared first on The Motley Fool Canada .
Fool contributor Amy Legate-Wolfe 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 .
2023