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How to Build a Bulletproof Monthly Passive-Income Portfolio With $25,000

money cash dividends
Image source: Getty Images

Written by Aditya Raghunath at The Motley Fool Canada

Investing in quality, high-yield dividend stocks can enable individuals to create a passive-income stream for life with a small amount of capital. As dividends are not guaranteed, it’s crucial to identify companies with a sustainable payout ratio, strong fundamentals, and steady cash flows. Moreover, these payouts should increase each year, which enhances the effective yield over time.

Let’s see how you can build a bulletproof monthly passive-income portfolio with $25,000 in 2024.

Invest in high-yield dividend stocks

Investors can consider investing in blue-chip dividend stocks such as Enbridge (TSX:ENB) to create a recurring stream of income. While Enbridge is part of the highly cyclical energy sector, the company is relatively immune to fluctuations in commodity prices.

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Enbridge is an energy infrastructure company that generates a significant portion of cash flows by transporting oil and natural gas across North America. Additionally, it has a growing base of renewable energy assets, diversifying its cash flows further.

A majority of Enbridge’s EBITDA (earnings from interest, tax, depreciation, and amortization) is tied to long-term contracts, which are indexed to inflation. Around 98% of Enbridge’s earnings are generated from cost-of-service or take-or-pay contract assets.

Due to its predictable earnings base, Enbridge has raised dividends by roughly 10% annually in the last 29 years, showcasing the resiliency of its business model. Today, Enbridge pays shareholders an annual dividend of $3.66, indicating a forward yield of 7.8%.

Enbridge met its financial guidance for the 18th consecutive year, exceeding the midpoint for EBITDA and DCF (distributable cash flow) per share, demonstrating the low-risk nature of its business.

Last year, Enbridge announced a big-ticket acquisition of three utilities from Dominion Energy for $14.5 billion, which spooked investors. To fund the acquisition, Enbridge would be forced to increase balance sheet debt, resulting in higher interest payments.

But in recent months, Enbridge sold its stake in Alliance and Aux Sable, positioning the company to complete the funding for the utility acquisitions, which includes $4.6 billion in equity capital. Moreover, the acquisition will create the largest integrated gas utility in North America.

Enbridge also invested $10 billion in growth projects, which should drive future cash flows and dividends higher. Despite a challenging macro environment, Enbridge increased EBITDA by 6% in 2023 due to strong performance from its liquid pipelines business.

Why is ENB stock a good buy right now?

Enbridge’s debt portfolio is less than 10% exposed to floating rate volatility. Additionally, more than 95% of its customer base is equipped with an investment-grade balance sheet, while 80% of its EBITDA is earned from assets protected against inflation.

COMPANY

RECENT PRICE

NUMBER OF SHARES

DIVIDEND

TOTAL PAYOUT

FREQUENCY

Enbridge

$47

532

$0.915

$487

Quarterly

Priced at 16 times forward earnings, Enbridge stock is not too expensive given its high dividend yield and estimated earnings growth forecast at more than 2% in the next five years. Analysts remain bullish on ENB stock and expect it to surge by 12.8% in the next 12 months.

An investment of $25,000 in ENB stock would help you earn close to $2,000 in annual dividends. Canadian investors should identify other such blue-chip, high-yield dividend stocks and create a diversified portfolio that lowers overall risk.

The post How to Build a Bulletproof Monthly Passive-Income Portfolio With $25,000 appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Dominion Energy and Enbridge. The Motley Fool has a disclosure policy.

2024