The Motley Fool

TSX Stocks: Canadian Giants That Offer $4,500 Yearly in Passive Income

Canadian Dollars
Image source: Getty Images

Stock markets continued to trade volatile recently. Many top TSX stocks have exhibited a sharp bounce back in the last few weeks, albeit they are still trading significantly lower than their 52-week highs hit earlier this year.

Defensive investors could take shelter in dividend-paying stocks amid this broad market uncertainty. Dividends are a great way to boost your total income, which can be used for a variety of expenses like paying utility bills, groceries, or any other discretionary expense.

If you are a Tax-Free Savings Account (TFSA) investor, it will further be a lucrative deal as dividends and capital gains generated by these stocks will be tax-exempt even at the time of withdrawal.

Top TSX stock with high-yield and high growth potential

With a $15 billion market cap, Pembina Pipeline (TSX:PPL)(NYSE:PBA) is one of the biggest energy infrastructure companies in the country. The stock has taken a significant beating since February due to volatile oil prices and broader market weakness.

Pembina stock is currently trading at a dividend yield of 9.3%, notably higher than its five-year average yield and even TSX stocks at large. This means that if one invests $25,000 in Pembina today, he or she will generate approximately $2,350 in dividends per year.

Investors should note that Pembina pays monthly dividends and has increased payouts by 6.5% compounded annually in the last five years.

Due to falling crude oil prices, Pembina recently announced an approximately $1 billion cut in capital spending for 2020. However, the management also clarified that Pembina has a strong balance sheet and resilient cash flows to fund its dividends payments.

Pembina stock has exhibited a fairly strong rebound recently, surging beyond $27 levels in just two weeks after hitting an eight-year low of $15 last month. While that should hardly matter for long-term investors, the rebound must have brought some relief to them. Notably, the top TSX stock still has halfway to go to reach its 52-week high of $53.8.

Power Corporation of Canada

Power Corporation (TSX:POW) is a diversified financial services company with a presence in North America, Europe, and Asia. It has interests in businesses such as insurance, wealth management, and renewable energy.

Power Corporation of Canada is the parent company of Power Financial, which has subsidiaries such as Great-West Lifeco, IGM Financial and Pargesa. Power Corporation has a complicated business structure, but the company looks attractive from a long-term investment standpoint.

TSX stock POW currently offers a yield of 8.3%, notably higher than broader markets. Thus, if you invest $25,000 in POW stock today, you will generate $2,150 in dividends per year.

Power Corporation’s earnings have been trending marginally down in the last two years after a notable surge in 2017. However, analysts’ estimates exhibit a fair recovery in the next couple of years.

POW stock looks like a great bargain at current levels and is trading 7 times its next years’ estimated earnings. Its five-year historical price-to-earnings multiple comes around 10 times. This indicates that the stock is trading at a discount and has room to grow.

If investors have an investible surplus of $50,000, an equal amount into these stocks will likely generate $4,500 yearly in dividends.

Investors should note that both the above TSX stocks have a long dividend payment history. However, future dividends are subject to management’s approval.

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 Vineet Kulkarni has no position in any of the stocks mentioned. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.

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.