Some investors focus on an absolute dividend amount when investing for passive income. However, that’s an imprudent approach; it is the dividend yield that makes the difference. The yield indicates how much an investor would receive relative to the stock price. Thus, income-seeking investors should look for a higher dividend yield and not a higher dividend amount. Apart from the yield, the company’s earnings stability is also a crucial factor that makes shareholder payouts reliable.
Here are two top Canadian dividend stocks that yield more than 3% and offer reliable dividends.
Utilities are generally considered boring due to their slow-moving stocks. However, if you are looking for stable passive income at relatively lower risk, utility stocks like FTS could be attractive choices.
As stated earlier, earnings stability matters a lot. That’s because we are considering passive income for the longer term. Fortis has not only paid but has increased shareholder payouts for the last 48 consecutive years. Such a long dividend growth streak is quite a feat and highlights reliability.
Fortis is a slow-but-stably growing company due to the stable demand outlook for its energy services and its large regulated operations. So, even if the broader economy suffers from a downturn or enjoys expansion, utilities like Fortis continue to see steady earnings growth. That’s why they are well placed to pay regular dividends to shareholders.
And if you think you could pass over FTS because of its slow-growth nature, you are probably mistaken. Its consistently growing dividends have contributed to shareholder returns over the long term. FTS has returned an 11% CAGR since the financial meltdown, outperforming the TSX Composite Index.
So, although Fortis’ yield is not comparatively high, its earnings and payment stability stand out among its peers.
Like Fortis, it operates a low-risk business model. The pipeline business carries energy commodities from drillers to refineries working on a fixed-fee model. So, even if crude oil prices fluctuate wildly, its earnings are relatively stable. This is what enables ENB to make a consistent increase in its dividends.
The energy sector has been flying high since the pandemic, thanks to higher oil and gas prices. So, as producers drill more oil from wells, it will create more business opportunities for midstream companies like Enbridge. ENB has returned a 13% CAGR since 2010, notably beating broad market indexes.
Investors can expect a decent dividend hike from Enbridge in the long term due to its huge pipeline network, stable earnings, and strong balance sheet.
Investors should consider increasing their exposure to defensives as recession risks increase. For example, investing $1,000 equally in the above two stocks would generate $48 in dividends every year. Though the amount looks trivial, it will likely keep growing as the company increases its profits. Plus, if you keep adding more shares to your portfolio and reinvest the dividends, the combined total return will result in a huge reserve in your sunset years.