How I’d Turn $5,000 Into a Passive Income Stream This Year

Investing in top dividend stocks is a proven strategy to start a passive income stream. One of the best aspects of investing in stocks is that it doesn’t necessarily demand a hefty upfront investment. Even a modest amount like $5,000 can be enough to set the foundation. Even small contributions can grow into a robust income-generating portfolio with time and consistency.

Canadian dividend stocks, particularly those backed by strong fundamentals and a history of paying dividends, are attractive bets for this strategy. Investing in companies with stable earnings and a commitment to rewarding shareholders can generate regular income, even amid market volatility.  

To begin building that passive income stream this year, I’d invest $5,000 in a few select dividend-paying stocks. With regular additions to my holdings, this strategy can create meaningful and sustainable passive income over time.

Enbridge

Enbridge (TSX: ENB) is one of the top TSX stocks that can help generate reliable passive income. This oil and gas transporter has a long history of paying and increasing dividends, while its future payouts are sustainable.

For instance, Enbridge’s resilient business model, diversified assets, long-term contracts, and low-risk commercial arrangements position it well to expand its earnings and distributable cash flow (DCF) regardless of market conditions and support higher dividend payments.

Thanks to its solid financials, Enbridge has been paying dividends for 70 years and growing them for 30 consecutive years. Enbridge also maintains a sustainable payout ratio of 60–70% of its DCF, which indicates that its dividend is durable. Moreover, Enbridge offers a high dividend yield of about 6%.

Enbridge is poised to expand its earnings and DCF at a healthy pace, led by the higher utilization of its vast energy infrastructure network. Further, Enbridge is expanding its renewable energy and utility-like infrastructure, which positions it well to deliver higher earnings. The company will benefit from its strategic acquisitions and multi-billion-dollar secured capital projects.

Overall, Enbridge is a dependable income stock. I’d consider this year to start a passive income stream.

Bank of Montreal

Canada’s leading financial institutions have a long history of rewarding shareholders, with some distributing dividends for over a century. Among the largest banking stocks, Bank of Montreal (TSX: BMO) offers reliable dividend payouts and an attractive yield, making it a compelling bet for starting a passive income stream.

This leading financial services company has paid dividends for 196 consecutive years, making it a reliable income stock. Moreover, BMO has rewarded its shareholders with increased dividend distributions, growing its annual payments at a compound annual growth rate (CAGR) of 5.4%. It offers a secured yield of 4.7%.

The bank benefits from diversified revenue streams, including wealth management, which has been a key driver of its growth. Its consistent loan and deposit growth fuels its revenue expansion. Beyond its revenue sources, the bank’s solid asset quality and focus on improving efficiency will likely drive its earnings and dividend payments. Moreover, its robust balance sheet will support its ability to expand operations and grow dividends over time.

Bottom line

Enbridge and Bank of Montreal stocks offer reliable dividends and are attractive investments to earn stress-free passive income. By investing $5,000 equally in these two stocks, you can build a dividend income portfolio and earn about $261.60 in dividends yearly.