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The $1,000/Month Challenge: Invest in These 2 Stocks for Regular Passive Income

Canadian Dollars
Image source: Getty Images

Written by Christopher Liew, CFA at The Motley Fool Canada

If you hear stories about people earning $1,000 monthly from dividend investing, it’s true, not fiction. Stock market traders have used the investment strategy for decades, generating income by doing nothing. But another truth is that most investors need substantial capital to produce $1,000 instantly.

The investment amount and dividend yield must be $400,000 and 3% or $200,000 and 6%. Because of the huge capital requirement, it becomes a challenge to hit the financial goal. However, it is achievable with the right stock combination and a longer investment period.

Stock pick #1

ATCO (TSX:ACO.X), provides diverse products and services across various industries through its subsidiaries and affiliate companies. Besides utilities and energy infrastructure, the $4.31 billion holding company is into structures & logistics, retail energy, transportation, and land & development.

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Over the last three years (2020 to 2022), ATCO’s average net income is $289.33 million. Earnings per share (EPS) grew 16% per year during the same period. Also, the stock’s dividend-growth streak is mighty impressive. It has raised its dividend for 31 consecutive years. If you invest today, the share price is $37.86 per share, while the dividend yield is 5.17%.

ATCO has maintained and continues to have a stable and growing earnings profile because of the diversified businesses and essential products and services. It owns 52.9% of Canadian Utilities, a premier utility company and Canada’s first Dividend King. This global enterprise will be around for decades to come.

Stock pick #2

Like ATCO, Brookfield Infrastructure Partners (TSX:BIP.UN) is another buy-and-hold stock. It’s bigger, with a $19.4 billion market capitalization and operates critical global infrastructure. The networks of the infrastructure assets facilitate the movement and storage of data, energy, freight, passengers, and water.

At $42 per share, the dividend offer is 4.82%. Management is confident of achieving its 5-9% distribution growth target and commits to rewarding investors with strong risk-adjusted total returns. For the nine months ended September 30, 2023, net income climbed 42% year over year to US$505 million.

Its chief executive officer (CEO), Sam Pollock, said Brookfield Infrastructure uses its size, scale, and diversification to continue recycling capital while realizing higher returns on new investments. Pollock added that the business fundamentals remain strong. The solid cash flow growth should allow annual dividend hikes (BIP.UN’s dividend growth streak is 14 years).

Realistic time frame

Look beyond the dividend yields and focus more on the ability of ATCO and Brookfield Infrastructure to deliver regular passive income in the current environment and beyond. You also get capital protection due to the defensive nature of the businesses.

Assuming the dividend yields remain constant, the average yield would be 4.995%, or between 3% and 6%. Given their share prices, you must accumulate $240,240 worth of shares ($120,120 equal allocation) to produce $1,000 in monthly passive income.

Allow an investment horizon of 35 years, although it could be shorter with dividend growth. It’s not unusual to have pension-like income streams if you own a pair of Dividend Aristocrats. You’d be telling a story in the future that you accepted the challenge and did it.

The post The $1,000/Month Challenge: Invest in These 2 Stocks for Regular Passive Income appeared first on The Motley Fool Canada.

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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

2024