Imagine waking up to a steady stream of passive income that lets you sleep soundly at night. Investing in high-yield dividend stocks is your ticket to achieving this dream. By consistently saving and investing in shares that offer sustainable and growing dividends, you can build a reliable income stream.
Plus, Canadian dividends are taxed more favorably than interest or foreign income, making them an attractive option for investors looking to maximize returns. With this strategic approach, you can create a portfolio that not only provides income but also stands the test of time.
High-yield stocks
When searching for high-yield stocks, aim for those that yield 1.5 to 2 times the average Canadian stock market yield. Using the iShares S&P/TSX 60 Index ETF as a benchmark, the current market yield hovers around 2.84%. Therefore, your focus should be on stocks offering yields between 4.26% and 5.68%.
While high yields are enticing, be cautious of excessively high yields that may be a red flag for financial instability or potential dividend cuts. By targeting well-established companies with a track record of reliable dividends, you can significantly reduce your investment risk while enhancing your income.
TD Bank
Toronto-Dominion Bank (TSX:TD) is a blue chip dividend stock that aligns with our high-yield criteria. Recent challenges, including a substantial US$3 billion fine related to a money-laundering case and lower growth expectations, have put pressure on its stock price, creating a unique buying opportunity. Currently, TD Bank trades at a low price-to-earnings ratio (P/E) of approximately 9.9, accompanied by a healthy yield of 5.2%.
Despite the short-term hurdles, TD Bank has consistently paid dividends through historical downturns, including the Great Depression and the 2008 financial crisis. With a solid track record of revenue growth — an 11.9% compound annual growth rate over the past decade — investors can feel confident in its ability to weather economic storms. Although the stock may face volatility in the near term, its robust dividend and potential for capital appreciation make it a compelling addition to a diversified portfolio.
Dream Industrial REIT
For those looking to diversify into real estate, Dream Industrial REIT (TSX:DIR.UN) presents an interesting opportunity. This Canadian real estate investment trust (REIT) operates in a resilient sector, as evident by its consistent increase in its in-place base rent since 2022, even amid declining occupancy rates. Although Dream Industrial REIT has been cautious by keeping its cash distribution stagnant since 2014, it has managed to increase its funds from operations per unit, showcasing its financial health.
Priced at $13.72 per unit at writing, it offers a sustainable cash distribution yield of 5.1%. Moreover, analysts suggest that the stock is undervalued, with potential upside of around 16% over the next 12 months. This makes it a good choice for income-seeking investors who want to capitalize on monthly cash distributions while also benefiting from potential price appreciation, especially on further dips.
The Foolish investor takeaway
Investing in high-yield stocks like TD Bank and Dream Industrial REIT can pave the way for a financially secure future. By focusing on companies with solid fundamentals and sustainable payouts, you can enjoy the dual benefits of steady income and long-term growth.