The Motley Fool

TFSA Investors: 2 Cheap But Safe Dividend Stocks to Build a 7%-Yielding Income Stream

Image source: Getty Images

Chasing yield is a bad idea, but so too is subscribing to the arbitrary 4% rule of thumb when it comes to picking dividend stocks.

To put it frankly, the 4% rule encourages laziness on the part of the investor. In the world of investing, if you desire better results over time, you need to put in the homework. It’s as simple as that.

While the 4% rule can save you from yourself, shunning stocks with yields north of 4% closes the door to many bountiful opportunities that wouldn’t be “so risky” if proper due diligence is exercised prior to the time of a stock’s purchase.

Here are two dividend stocks with safe dividends that, when combined, would average a 7% yield.

Inovalis REIT

If more income investors knew of Inovalis REIT (TSX:INO.UN), its shares would likely be a heck of a lot higher than where it’s at today. The name offers a very bountiful and, believe it or not, safe distribution payout that currently yields 8.2%.

The high yield and lower correlation to the broader markets ought to command a hefty premium multiple, but as a smaller-cap European-focused REIT, it’s largely gone under the radar in spite of its massive distribution that’s likely that safest play as far as +8% yielders are concerned.

What the REIT has in the distribution department, it lacks in terms of capital gains. Shares have fluctuated around a very flat uptrend line, virtually moving nowhere over the last five years.

Moving forward, the REIT is expected to expand its footprint across its European markets of interest, and that’ll boost AFFO and, in turn, distribution growth over time. As more light is shed on the safe high yielder, I suspect a bit of multiple expansion, but nothing too meaningful over the nearer term.

5 TSX Stocks Under $5

Click here to learn more!

Brookfield Renewable Partners

Up next, we have one of my favourite sustainable energy plays in Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP). Although the dividend yield has since shrunk as a result of the huge year-to-date rally, I’m still bullish on the name because the valuation remains depressed, the long-term prospects are compelling, and management is really as good as they come as far as growth in the renewable space is concerned.

Yes, BEP just hit an all-time high, but the 8.4 times EV/EBITDA is a valuation that’s far too good to pass on. It’s a quality player in a secular, strong industry with exceptional stewards running the show, all at an absurdly low price point. Oh, and there’s the 5.9% yield, too.

What more could you ask for?

If you’re looking to boost your income without increasing your portfolio’s overall volatility, look no further than Brookfield Renewable.

Stay hungry. Stay Foolish.

5 Canadian Growth Stocks Under $5

We are giving away a FREE copy of our "5 Small-Cap Canadian Growth Stocks Under $5" report. These are 5 Canadian stocks that we think are screaming buys today.

Get Your Free Report Today

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. Brookfield Renewable Partners and Inovalis are recommendations of Dividend Investor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.