Advertisement
Canada markets closed
  • S&P/TSX

    21,639.10
    -59.01 (-0.27%)
     
  • S&P 500

    5,431.60
    -2.14 (-0.04%)
     
  • DOW

    38,589.16
    -57.94 (-0.15%)
     
  • CAD/USD

    0.7281
    +0.0001 (+0.02%)
     
  • CRUDE OIL

    78.49
    -0.13 (-0.17%)
     
  • Bitcoin CAD

    90,917.47
    +1,046.17 (+1.16%)
     
  • CMC Crypto 200

    1,402.77
    -15.10 (-1.07%)
     
  • GOLD FUTURES

    2,348.40
    +30.40 (+1.31%)
     
  • RUSSELL 2000

    2,006.16
    -32.75 (-1.61%)
     
  • 10-Yr Bond

    4.2130
    -0.0250 (-0.59%)
     
  • NASDAQ

    17,688.88
    +21.32 (+0.12%)
     
  • VOLATILITY

    12.66
    +0.72 (+6.03%)
     
  • FTSE

    8,146.86
    -16.81 (-0.21%)
     
  • NIKKEI 225

    38,814.56
    +94.09 (+0.24%)
     
  • CAD/EUR

    0.6798
    +0.0024 (+0.35%)
     

Passive Income: How to Make $586 Per Month Tax Free

Various Canadian dollars in gray pants pocket
Image source: Getty Images

Written by Amy Legate-Wolfe at The Motley Fool Canada

Passive income remains the top focus of investors these days. While there are certainly many stocks that will offer major growth in the years to come, that does little to help your pockets right now. That is why today, I’m going to focus on how to earn passive income — right now and for life, and all tax free.

Get the right account

It’s pretty clear that if you’re going to earn passive income tax free, you’re going to need a Tax-Free Savings Account (TFSA). Since 2009, the TFSA has added more and more contribution room, with this year totaling $88,000 if you were at least 18 in 2009 and have never contributed to the account.

ADVERTISEMENT

Creating $586 every month is going to take a major investment. That is why you should consider purchasing shares in a solid company with high dividends and work your way up to $586 per month.

To do that, you’re going to have to figure out how much you can afford to invest now as well as how much you can afford to invest on a consistent, annual basis. Then reinvest your dividend income as you go. A financial advisor can certainly help you come up with the numbers that fit your budget.

A monthly recommendation

Now, if you’re going to aim for monthly passive income of $586, that means finding a monthly dividend stock. A solid option I would consider that remains incredibly cheap is Northland Power (TSX:NPI). It’s especially good for those looking into the renewable energy sector. It provides passive income each month, with a dividend yield currently at 4.03%.

As of writing, shares of Northland stock are down 24% in the last year. Those shares are still up by 56% in the last decade after the major drop it’s seen. That still provides a compound annual growth rate (CAGR) of 4.32% to remain conservative. Meanwhile, its dividend has seen a CAGR of 1.06% in that time.

Bottom line

Now for the fun part. To create $586 monthly, that means coming up with $7,032 in annual passive income. Let’s say you have $25,000 to put towards NPI stock today. We’ll then reinvest the dividends from this and add $6,000 each year to your TFSA, which is usually the contribution limit or around there. We’ll then hold it for 30 years.

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

862

$1.20

$1,034.4

$26,034.40

$6,000.00

1,058

$30.59

$32,034.40

2

1,058

$1.21

$1,280.18

$33,314.58

$6,000.00

1,246

$31.91

$39,314.58

3

1,246

$1.22

$1,520.56

$40,834.74

$6,000.00

1,426

$33.29

$46,834.76

4

1,426

$1.24

$1,768.53

$48,603.29

$6,000.00

1,599

$34.72

$54,603.29

5

1,599

$1.25

$1,998.75

$56,602.04

$6,000.00

1,764

$36.22

$62,602.04

6

1,764

$1.26

$2,223

$64,825.50

$6,000.00

1,923

$37.79

$70,825.50

7

1,923

$1.28

$2,461.44

$73,286.94

$6,000.00

2,075

$39.42

$79,286.94

8

2,075

$1.29

$2,676.75

$81,963.69

$6,000.00

2,221

$41.12

$87,963.69

9

2,221

$1.30

$2,887.30

$90,850.99

$6,000.00

2,361

$42.90

$96,850.99

10

2,361

$1.32

$3,116.52

$99,967.51

$6,000.00

2,495

$44.75

$105,967.51

11

2,495

$1.33

$3,318.35

$109,285.86

$6,000.00

2,624

$46.69

$115,285.86

12

2,624

$1.35

$3,542.40

$118,828.26

$6,000.00

2,747

$48.71

$124,828.26

13

2,747

$1.36

$3,735.92

$128,564.18

$6,000.00

2,865

$50.81

$134,564.18

14

2,865

$1.38

$3,953.7

$138,517.88

$6,000.00

2,978

$53.00

$144,517.88

15

2,978

$1.39

$4,139.42

$148,657.3

$6,000.00

3,086

$55.29

$154,657.3

16

3,086

$1.40

$4,320.40

$158,977.7

$6,000.00

3,190

$57.68

$164,977.7

17

3,190

$1.42

$4,529.80

$169,507.5

$6,000.00

3,289

$60.17

$175,507.5

18

3,289

$1.43

$4,703.27

$180,210.77

$6,000.00

3,384

$62.77

$186,210.77

19

3,384

$1.45

$4,906.80

$191,117.57

$6,000.00

3,475

$65.49

$197,117.57

20

3,475

$1.47

$5,108.25

$202,225.82

$6,000.00

3,563

$68.31

$208,225.82

21

3,563

$1.49

$5,308.87

$213,534.69

$6,000.00

3,647

$71.26

$219,534.69

22

3,647

$1.50

$5,470.50

$225,005.19

$6,000.00

3,727

$74.34

$231,005.19

23

3,727

$1.52

$5,665.04

$236,670.23

$6,000.00

3,804

$77.55

$242,670.23

24

3,804

$1.53

$5,820.12

$248,490.35

$6,000.00

3,878

$80.90

$254,490.35

25

3,878

$1.55

$6,010.90

$260,501.25

$6,000.00

3,949

$84.39

$266,501.25

26

3,949

$1.57

$6,199.93

$272,701.18

$6,000.00

4,017

$88.04

$278,701.18

27

4,017

$1.58

$6,346.86

$285,048.04

$6,000.00

4,082

$91.84

$291,048.04

28

4,082

$1.60

$6,531.20

$297,579.24

$6,000.00

4,144

$95.81

$303,579.24

29

4,144

$1.62

$6,713.28

$310,292.52

$6,000.00

4,204

$99.95

$316,292.52

30

4,204

$1.63

$6,852.52

$323,145.04

$6,000.00

4,262

$104.26

$329,145.04

After reaching 4,262 shares, you’ll be at a dividend of $1.65 in annual passive income. This comes to $7,032.30, which gives you that $586 each and every month.

The post Passive Income: How to Make $586 Per Month Tax Free appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Northland Power?

Before you consider Northland Power, you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in May 2023... and Northland Power wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 23 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 5/24/23

More reading

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