How to Build a Powerful Passive Income Portfolio With Just $20,000

Building a powerful passive income portfolio requires stocks that can give you assured dividends in any economy. The dividends should grow with inflation, and the company should also buy back shares to create room for dividend growth. When the outstanding share count reduces, each share gets a larger portion of the total dividend pool. If you have $20,000 at your disposal to build a passive income pool, you can start earning $800 from 2026 onwards and increase it to around $1,400 by 2030.

Ingredients for your passive income portfolio

In the debate of high yield vs. high dividend growth, the former wins when you want a higher payout immediately. The latter wins when you want a higher payout 5 or 10 years later.

Since we are building a powerful passive income portfolio for the future, the first $20,000 investment will go from your pocket towards dividend stocks with a high dividend growth rate.

Within the financial sector, you have three strong stocks:

• Power Corporation of Canada (TSX:POW) with a dividend compounded annual growth rate (CAGR) of 7%
• goeasy (TSX:GSY) with a 30% dividend CAGR
• Manulife Financial (TSX:MFC) with an 11% dividend CAGR

This average annual growth is from the last 11 years, which saw a period of interest rate hikes and cuts, and market rallies and crashes.

Power Corporation of Canada

Power Corporation of Canada earns dividends from its holding companies, GreatWest Lifeco and IGM Financial. Having multiple financial businesses, from insurance to wealth management to private equity, it earns regular cash flow from premiums and management fees. The same gets passed on to POW shareholders. The more the world invests in financial products, the more passive income you get.

Manulife Financial

Manulife Financial also earns from premiums and fund management fees. The company is seeing significant growth from North America and Asia. It is entering India in a joint venture with Mahindra & Mahindra to benefit from the three largest economies in the world. While insurance is a competitive market, Manulife has a strong global presence that helps it grow.

goeasy

While the above two are resilient, large-cap stocks with global presence, goeasy is a mid-cap stock with local presence. It is in the business of managing credit risk by giving subprime loans to Canadians. goeasy became a target of a short-seller report, which claimed that the net charge-off rate and bad loans are understated. The provisions for credit losses are diluted, and the loan portfolio, which is growing rapidly, carries higher credit risk.

Even if these accusations of accounting manipulations are true, goeasy is hiring a new chief financial officer. The management change could set some things right. If the accusations are false, the dividend will keep coming, although the growth may slow as the government has capped the maximum interest rate.

How to build a robust passive income portfolio with the above stocks

You can buy 100 shares each of POW and Manulife with a total investment of $12,230 and 65 shares of goeasy with the remaining amount.

StockShare PriceDividend per ShareNumber of sharesInvestment amountPower Corporation of Canada$73.32$2.45100$7,332.00goeasy$125.64$5.8465$8,166.60Manulife Financial$48.98$1.76100$4,898.00    $20,396.60

Since POW and Manulife are large-cap, stable stocks, I expect them to retain their dividend CAGR at 7% and 9% for the next five years. As for goeasy, I halved the dividend growth rate estimate to 15% to account for the credit risk.

For a little over $20,000, you can earn $890.53 in passive income in 2026, which equates to a 4.4% yield. However, in five years, this amount could grow to $1,378 without any additional investment, only from dividend growth. Your portfolio yield may grow to 6.8%.

In five years, the cumulative passive income from a $20,400 investment will come to $5,600.

YearPOW dividend income on 100 shares (7% CAGR)GSY dividend income on 65 shares (15% CAGR) Total Dividend income on a $20,000 investment Total Dividend income on a $20,000 investment2026$262.15$436.54$191.84$890.532027$280.50$502.02$209.11$991.632028$300.14$577.32$227.93$1,105.382029$321.15$663.92$248.44$1,233.512030$343.63$763.51$270.80$1,377.93Total$1,507.56$2,943.32$1,148.11$5,598.98

You can invest this dividend income to earn more passive income and compound your returns.

The post How to Build a Powerful Passive Income Portfolio With Just $20,000 appeared first on The Motley Fool Canada.

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More reading

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• 2 Market-Proof Dividend Stocks for Lasting TFSA Income
• Build a Pumping Passive Income Portfolio With $35K

Fool contributor Puja Tayal 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 a disclosure policy.