The fundamentals of passive income
Passive income is a source of income where money works for you. It gives you a fixed amount and sometimes an additional amount at regular intervals for 10 to 20 years. The pandemic could bring radical changes in the way businesses operate.
Many businesses could resort to permanent downsizing and automating mundane tasks to improve operational efficiency. For example, Suncor Energy is accelerating its shift to “Suncor 4.0” program to embrace digital technologies and have a smaller workforce. The job market will only get more difficult and self-employment could become the new normal.
The CRA launched the Tax Free Savings Account (TFSA) during the 2009 crisis, and those who took advantage of the opportunity are earning $ 1,000 per month in passive income today. It’s not too late to take control of your finances.
How to earn $ 35 a day in passive income without working
Dividend stocks are a good source of passive income. You can earn $ 35 per day from your TFSA with a one-time investment of $ 69,500. Here’s how.
If you didn’t start saving in the TFSA in 2009, the CRA allows you to save a cumulative amount of $ 69,500 this year. If you have savings, you can put that money Enbridge (TSX: ENB) (NYSE: ENB) through your TFSA. It is advisable to diversify your savings. If $ 69,500 includes all of your savings, save 20%, or $ 14,000, by Enbridge.
Why am I suggesting Enbridge? Because it’s a stock that has steadily increased its dividends over the past 25 years, despite the 2009 financial crisis and the 2014 oil crisis. Over the past 10 years, it has increased its dividend to a CAGR of 28.7%. Even in the pandemic crisis of 2020, it remains strong and plans to increase its dividends next year.
Enbridge is a pipeline operator and allows utilities to transport oil and natural gas through its pipeline for a nominal fee. What makes its cash flow resilient to the economic crisis is its greater pipeline infrastructure and pricing power. It increases its cash flow by building new pipelines, charging higher fees, and adding more revenue streams, like gas storage and renewable energy production. It has more than 40 sources of cash flow by business segment, product and geographic region.
Some investors are concerned about the transition to low-emission energy. Natural gas has replaced petroleum in several areas, but petroleum remains the primary ingredient in jet fuel. The transition to renewables is underway, but it will take another 20 years to show a significant change in demand for oil and natural gas. Until then, all three energy sources will prevail.
In 1949, Enbridge was only transmitting liquid fuel. Over the past 20 years, it has invested heavily in the transport, distribution and storage of natural gas and today contributes 43% to the company’s turnover. In 2020, demand for oil collapsed as transportation stopped. Its oil revenues fell 40% in the second quarter. But its Distributed Cash Flow (DCF) was not affected, with low oil cash flow being offset by high cash flow from natural gas.
Enbridge has sufficient liquidity of $ 14 billion and has also secured capital for next year’s projects. He expects his DCF to grow 2.8% this year, which will help him increase his dividends next year.
What to remember from passive income investors
Assuming Enbridge raises its dividend at a CAGR of 8% for the next decade, how much will you earn? Your one-time investment of $ 69,500 will give you $ 35 per day in passive income by 2030 from $ 16 per day in 2020. And if you invest $ 14,000, you’ll get $ 7 per day by 2030 versus 3 $ per day in 2020.
Here are some other dividend-paying stocks to increase your passive income.
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Crazy contributor Puja Tayal doesn’t have a position in any of the stocks mentioned. The Motley Fool owns shares and recommends Enbridge.