Establishing a passive income stream is a dream that all investors share. Unfortunately, those who are new to investing often struggle unnecessarily with the idea of how to build a passive income portfolio.
In fact, building a passive income portfolio isnât as hard as it may seem, and can be kicked off with a small amount like $6,500.
Finding a great stock that pays out an insane yield isnât going to help your portfolio over the longer term. This is why itâs important to build a passive income portfolio with stocks that can continue to provide income for years.
A great example of this is Bank of Montreal (TSX:BMO). BMO is the oldest of Canadaâs big banks and has been paying out dividends for nearly two centuries without fail. Thatâs an insane amount of time spanning downturns, conflicts, wars, and boom years.
Today, BMO offers investors a quarterly yield that works out to 5.5%. This means that your initial $6,500 outlay will provide just over $350 income in the first year.
Thatâs not enough to retire on, but it will provide some growth each year through reinvestments to help build a passive income portfolio.
Adding a stock that can provide some defensive appeal is always a great option for investors. Finding one that can provide both defensive appeal and income-earning potential is even rarer.
Fortis (TSX:FTS) manages to do both of those while also boasting significant growth potential.
For those unfamiliar with the stock, Fortis is one of the largest utilities in North America. Utilities boast one of the most stable business models on the market. In short, utilities provide a service that is backed by very long-term regulated contracts.
In other words, as long as Fortis provides that utility service, it continues to generate a stable and recurring revenue stream. And that stability allows Fortis to invest in growth initiatives and pay out a very handsome dividend.
As of the time of writing, the yield on Fortisâ quarterly dividend is a respectable 4.20%. Investors looking to build a passive income portfolio with $6,500 can expect to generate a first-year income of $270.
Prospective investors should also note that Fortis has provided investors with an annual bump to that dividend for an incredible 50 consecutive years.
That fact, along with its defensive business model, makes Fortis a must-have for any well-diversified portfolio.
One final option to consider to help build a passive income portfolio is BCE (TSX:BCE). BCE is one of Canadaâs largest telecoms, boasting both a reliable subscription-based business and a massive media arm.
Like Fortis, BCE is a defensive business that while not immune from market volatility, can handily weather financial downturns. In fact, the defensive appeal of telecoms like BCE has grown significantly in recent years since the pandemic started.
Turning to income, BCE has been paying out quarterly dividends for over a century without fail. Today, the yield on offer is an insane 7.25%. This makes the stock one of the better-paying options on the market.
Investors should also note that this defensive gem, like much of the market, trades down in 2023. Specifically, BCE is down by 10% year to date, making it a superb buy at a decent discount.
There are two key takeaways if youâre looking to build your passive income portfolio.
First is the common misconception that you need a massive amount of cash to start. Instead, start small, buy shares over time, and let reinvestments do the rest.
Second, the earlier you start, the better. Markets will rise and fall as part of a natural cycle. And while thereâs never a perfect moment to buy or the ability to time the market, starting early can provide a massive boost over time.
In my opinion, the three stocks mentioned above can help build a passive income for any well-diversified portfolio.
Buy them, hold them, and watch your future income grow.
The post How to Build a Passive Income Portfolio Starting With Just $6,500 appeared first on The Motley Fool Canada.
Before you consider BCE, you’ll want to hear this.
Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in October 2023… and BCE wasn’t on the list.
The online investing service they’ve run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 25 percentage points. And right now, they think there are 5 stocks that are better buys.
* Returns as of 10/10/23