Passive Income: How Much Should You Invest to Earn $1,000 Every Month?

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Written by Karen Thomas, MSc, CFA at The Motley Fool Canada

Are you looking to introduce more choices and freedom in your life? Do you have a nagging desire to gain financial freedom to rid yourself of the burden of toiling away to pay your bills? If you answered yes, then it’s time to start building your passive-income stream.

Think big when it comes to passive income

To achieve the financial freedom we all desire, we have to think big. This means sacrifice. And it means being disciplined and consistent. But it’s called passive income because after the work required to find the right opportunity and after the initial investment, you just have to sit back and collect.

To start off, a goal of $1,000 a month in passive income is significant but also achievable. In time, you will build from there, but that’s a good starting point. So, how much money would it take to achieve this level of passive income?

It all depends on expected returns

The amount of money you will need to invest will be dependent on the returns of the stocks you invest in. The trick is to find the right balance between risk and reward. Also, we want stocks that pay reliable and growing dividends, as this will sustain the passive income for years to come.

Thankfully, I have two ideal stocks for this purpose.

Enbridge stock

With a current dividend yield of 8%, Enbridge (TSX:ENB) is one of two passive-income ideas I will discuss in this article that are good for building up your passive income.

In fact, it’s been supplying investors with solid dividend income for many years now. Enbridge has 28 years of annual dividend increases under its belt. During this time period, its annual dividend has grown at a compound annual growth rate (CAGR) of 7.25% to the current $3.55 per share. Essentially, the dividend today is 1,320% higher than it was in 1995. Also, Enbridge stock is also more than 1,000% higher in the same time period.

More recently, Enbridge’s results have continued to show that the business continues to perform well. In the first six months of 2023, Enbridge’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 8% to $8.5 billion. Also, its distributable cash flow was $5.9 billion. Hence, we can continue to have faith in Enbridge’s dividend.

TD Bank stock

Toronto-Dominion Bank (TSX:TD) is another Dividend King that investors have been able to rely on for passive income for decades. This is evident in TD Bank’s dividend history and its solid returns.

In fact, since the 2008 credit crisis, TD Bank’s dividend has grown almost 240%. That’s a CAGR of 8.4%. It’s an example of a company that has been able to thrive in the long run and through crises. It should give us confidence in the strength of TD Bank and of the Canadian banking system in general.