The 2 Best Dividend Stocks to Boost Your Passive Income

Dividend-paying stocks are a tried and trusted way to earn extra cash.

| More on:
money cash dividends

Image source: Getty Images

If you are planning to increase your passive income amid low-interest rates, consider investing in top TSX dividend stocks. Dividend stocks are a tried and trusted way to earn extra cash. Moreover, you don’t need large upfront investments to buy stocks and gradually build your capital to generate strong passive income. 

Let’s look into the two best Canadian dividend stocks that should be part of your income portfolio. 

TC Energy

Thanks to its high-quality earnings base and robust cash flows, TC Energy’s (TSX:TRP)(NYSE:TRP) annual dividend has increased at an average rate of 7% for the past 20 years. Moreover, it has delivered an average annual total shareholder return of 12% during the same period.

TC Energy’s low-risk and diversified portfolio of energy infrastructure assets continue to perform well and remain immune to the short-term volatility in commodity prices and volume throughput. The company’s utilization rate remains at historical levels, thanks to its high-quality assets that are either regulated or have long-term contracts.

The company is advancing well on its $37 billion capital growth program, which is likely to drive its earnings and cash flows and support its future dividend payouts. Moreover, these projects are reinforced by the cost of service and take-or-pay contracts. 

TC Energy forecasts adjusted EBITDA to increase at a CAGR of 8% through 2024 and expects an 8-10% growth in its dividends for 2021. Moreover, it projects a 5-7% increase in its annual dividends after 2021. TC Energy pays an annual dividend of $3.24 a share, reflecting a yield of 6.1%. 

Scotiabank

Scotiabank (TSX:BNS)(NYSE:BNS) stock should be on your radar to generate stable passive income. The bank started to pay dividends in 1833. Moreover, Scotiabank’s high-quality earnings base has led it to increase its dividends in 43 out of the past 45 years. Furthermore, Scotiabank has raised its dividends at a compound annual growth rate (CAGR) of 6% since 2019.

I believe the uptick in economic activities is likely to drive credit growth for banks and support the net interest margin. Meanwhile, Scotiabank’s diversified footprint and exposure to high-quality growth markets position it well to benefit from the recovery in demand. 

Scotiabank’s profitability is likely to improve on the back of higher loans and deposits and an expected decline in loan provisions, which should support its future dividend payments. Currently, it pays an annual dividend of $3.60 a share, reflecting a yield of 5.3%.             

Investors should note that Scotiabank is trading at an attractive valuation multiple, which I believe could expand further. Scotiabank stock trades at a forward P/BV (price/book value) ratio of 1.0, reflecting a discount of about 33% compared to the peer group average of 1.5. Moreover, its price/earnings ratio of 9.7 is also lower than the peer group average.  

Final thoughts

Large-scale vaccine rollout and easing of lockdown measures could accelerate the pace of economic recovery, which is likely to boost the financials of both these companies. Both TC Energy and Scotiabank generate high-quality earnings, suggesting that the dividend payouts are pretty safe.

Notably, a $10,000 investment in each of these stocks could generate a passive income of $1,140/year.

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

sale discount best price
Dividend Stocks

3 Remarkably Cheap TSX Stocks to Buy Right Now

Investing in undervalued TSX stocks such as Eldorado Gold should help Canadians derive steady gains in 2024 and beyond.

Read more »

Canadian Dollars
Dividend Stocks

2 Magnificent Ultra-High-Yield Dividend Stocks That Are Screaming Buys in July

These two top Canadian dividend stocks offer over 8% annualized dividend yield in July, making them really attractive to buy…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

1 TSX Stock That Could Help Set You Up for Life

Early investors in Intact Financial (TSX:IFC) stock could earn a 17% dividend yield in 2024. Here's how IFC stock could…

Read more »

Increasing yield
Dividend Stocks

3 High-Yield Stocks for Canadian Retirees

These Canadian dividend stocks can help retirees to earn steady passive income and high yields.

Read more »

dividends grow over time
Dividend Stocks

Just How Sustainable Is the Smashing 9% Yield of These 2 Stocks?

Sustainable high yields are rare, so when they occur, it's usually a good idea to take advantage.

Read more »

Woman has an idea
Dividend Stocks

TC Energy Stock: Buy, Sell, or Hold?

TC Energy is up nearly 30% from the 12-month low. Are more gains on the way?

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Here Are My Top 5 Dividend Aristocrats to Buy Right Now

Now is the time to buy these top five dividend aristocrats at their two-year low before they recover to 2021…

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

Is NorthWest REIT Stock the Best High-Yield Dividend for You?

NorthWest REIT (TSX:NWH.UN) offers a substantial dividend, but exercise caution with this riskier stock.

Read more »