Build a Passive-Income Empire Now With Dividend Stocks

COVID-19 should be a wake up call. Don’t just rely on your job for income! Here’s how to start earning passive income from quality dividend stocks.

Kay Ng

Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.

Published April 23, 2020 8:00 am EDT

The market crashed, and stocks are still low for long-term investment. For example, Toronto-Dominion (TSX: TD)(NYSE: TD) stock trades at about $55 per share at writing.

TD Dividend Yield data by YCharts.

Observing a period of longer than 25 years from the graph above, it has been a pretty good deal to grab the dividend stock at a 4% yield. And now, it offers an even juicier dividend yield of 5.8%! That’s 45% greater in passive income! What a wonderful deal!

The TD stock price isn’t going to stay this low forever. But let’s say it does. Its dividend is well protected by a payout ratio of about 50%. This means it’s paying out half of its earnings as dividends and retaining the rest to run and grow the business.

In the last 20 years, the Canadian bank stock has never cut its dividend. In fact, its dividend is close to six times what it was then.

So, if you’d bought the stock 20 years ago and earned $500 of annual passive income from the stock, you’d be earning about $2,850 now!

All investments come with risks. TD stock is cheap trading at about 8.6 times this year’s estimated earnings because the near-term North American economic outlook is gloomy. Many people are at least temporarily laid off due to the fight against COVID-19.

Buyers of TD stock today should be ready for stagnant growth for a while but be happy getting paid a 5.8% yield.

Enbridge stock is great for income

Enbridge (TSX: ENB)(NYSE: ENB) stock is another wonderful stock for passive income.

ENB Dividend Yield data by YCharts.

Over more than 20 years, as shown from the graph above, there were few opportunities to buy the dividend stock at a yield of more than 5%. And now, it offers a whopping dividend yield of 8%. That’s 60% greater in passive income! What a great deal!

Enbridge is one of the most defensive energy stocks on the TSX index. It has a resilient business model with minimal commodity price risk and largely investment-grade customers. The quality of ENB stock’s cash flow is also among the best in the industry.

The North American energy infrastructure leader has increased its dividend for 24 consecutive years and counting. This means it increased its payout through low energy prices before.

If you’d bought ENB stock two decades ago and earned $500 per year of passive income from the stock, you’d be generating about $4,625 now!

Because of the lower energy demand situation, Enbridge will be navigating the ship even more prudently than before. Some of the focuses include continuing to improve the balance sheet and to run the business more efficiently.

ENB stock investors should be very happy with a starting yield of 8%.

Build a passive-income empire now

COVID-19 won’t be the last big thing that impacts the economy and people’s livelihoods. Don’t just rely on active income from your job.

Build a passive-income empire now with dividend stocks, starting with TD stock and ENB stock. Currently, they offer an average yield of 6.9%, which can immediately help complement your active income.

Investing $15,000 in each stock will generate passive income of about $2,070 a year. Don’t just stop at two quality dividend stocks, though. More diversification is needed.