How much to invest to earn $1,000 every year

Written by Amy Legate-Wolfe of The Motley Fool Canada

When it comes to building passive income, earning $1,000 each year can be a challenge, especially if you’ve decided to withdraw dividend income rather than reinvest it. While this is ideal, whether this is what you need to live your life is entirely up to you.

In fact, this can certainly be the case in retirement. You need this money to literally live your life! That doesn’t mean investors should ignore returns, though. Today, let’s see what to consider if you want a long-term income that is expected to reach $1,000 every year.

Consider the sector

First, investors should consider safe, long-term sectors that are expected to continue to grow steadily over the years. There are definitely a few of these sectors to consider, but one that I like is insurance and asset management.

In this case, people will always need financial protection, which results in a constant demand for insurance products like life, health and car insurance. This constant demand creates a predictable revenue stream for insurance companies.

When it comes to asset management, as wealth increases, so does the demand for professional investment management. Individuals and institutions entrust their assets to asset managers to ensure growth and generate income. This trend is expected to continue in the long term.

Consider the stock

Now you will want to search for a title that fits this industry. In this case, for those looking for passive income, I would look to Manulife Financial (TSX:MFC). Manulife shares offer various insurance products like life, health and auto insurance, similar to what makes the sector attractive. Therefore, consistent demand for these products translates into predictable income for Manulife stock.

In addition, Manulife also manages wealth and investments for individuals and institutions. This corresponds to the growing demand for professional investment management, which can benefit from long-term growth.

The story continues

Manulife shares also have a history of producing passive income. The company has a long track record of paying and growing dividends. In addition, the company could benefit from long-term economic growth, which could increase its profits and share price, particularly in the face of an aging population that needs insurance and wealth management.

Consider its history

Now let’s look at Manulife’s history of passive income. Over the past decade, Manulife shares have risen steadily. The shares have more than doubled during this period, delivering a compound annual growth rate (CAGR) of 7.8%.

As for the dividend, it has also increased regularly. In fact, even more! The company’s CAGR for its dividend has also grown at a rate of 11.9% over the past decade. This can provide even more passive income. Now let’s see how much you would need to invest to create $1,000 each year in dividends alone.

As you can see, to create $1,000 of passive income through dividends, it would mean investing $22,500. However, see this increase and next year you will have even more passive income. This should reach $1,118.75 in dividends, as well as yields of $1,755! That’s a total passive income of $2,873.75 if history repeats itself. And given the company’s performance, history probably will.

The article Passive Income: How Much to Invest to Make $1,000 Every Year appeared first on The Motley Fool Canada.

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Foolish contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.

2024