Christopher Liew, CFA
·3 minutes reading
Written byChristopher Liew, CFAvan The Motley Fool Canada
People invest for capital growth and for that matterbuild up pension assets, although others want to generate passive income streams on a regular basis. Earning $2,000 in monthly passive income sounds incredible, but it can be achieved through dividend investing. However, the amount of investment required to generate the desired income is significant.
To earn $2,000 in dividend income, the investment amount and return must be $400,000 and 6%, respectively. If the rate is lower, e.g. 4%, previous investment is $600,000.
High yieldTransAlta renewable energy sources(TSX:RNW) pays monthly dividends on the TSX. Given the stock price ($11) and yield (8.19%), you only need to buy $293,040 worth of stock to reach $2,000 per month. Assuming your available funds are $41,350 and the stock price and dividend remain constant, it will take 24 years to reach the goal.
Green investment
TransAlta Renewables generates contracted cash flows from long-term power purchase agreements. The $3 billion company has owned assets in Canada (wind, hydro and gas) and economic interests in Australia (gas) and the United States (wind and solar).
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TransAlta Renewables is one of the largest wind energy producers in Canada. The total or combined gross installed capacity (own assets and economic interests) is 2,993 MW. In 2022, revenue rose 19.1% to $560 million, although net profit fell 47.1% year-over-year to $74 million.
Wind energy is TransAlta's largest renewable energy fleet, although volume is highest in the first and fourth quarters. In the second and third quarters, hydro supplies a higher volume. Fortunately, net profits in the first quarter of 2023 increased 9.7% to $45 million compared to the first quarter of 2022, despite the underperformance of the Canadian wind fleet due to lower than normal wind conditions.
Chairman Todd Stack said, "We remain on track to meet our 2023 expectations, thanks in large part to our diversified operating portfolio." This year's adjusted EBITDA target is between $495 million and $535 million, up from $487 million, while free cash flow could peak at $380 million versus $347 million last year.
Expanding clean energy
TransAlta plans to expand its existing assets to achieve incremental growth in a competitive environment. The early development projects in the three countries will add 685 MW when completed between 2025 and 2028.
Despite the effect of seasonality on business performance, long-term contracts with strong counterparties should deliver stable cash flows and consistent shareholder returns. Since going public, TransAlta has never paid a monthly dividend since September 13, 2013.
TransAlta believes that 2020 will be a decade of tremendous changeclean energyexpansion. The company is ready to invest in clean energy solutions and is enthusiastic about its role in the transition.
Spread the risks
TransAlta Renewables attracts income investors because of its juicy dividend and consistent dividend history. However, it is safer to build a portfolio of dividend income rather than a single stock investment. You spread risks by diversifying or investing in a mix of companies.
Dividend investing offers protection against price falls or fluctuations. The power of compounding also comes into play when you reinvest the dividends. You can start small and add more shares as you go. The money growth is slow, but over time you will reach your goal of earning $2,000 in monthly passive income.
By postHow much to invest for $2,000 in monthly passive incomeappeared firstThe motley fool Canada.
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Foolish contributor Christopher Liew 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 onedisclosure policy.
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