Passive Income: 3 Buy-and-Hold Dividend Stocks

Do you need passive income? Get more income from dividend stocks, but watch out for the valuation you’re paying.

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Canadians should have adapted to the low interest rate environment by now. The best five-year GIC rate is 2.4%. If you need more passive income, you can do better with dividend stocks.

Ideally, instead of seeking high yields, you can generate more passive income in the long run by investing in dividend stocks that grow. Here are some Canadian Dividend Aristocrats that should increase your passive income over time.

Enbridge stock

This week, Enbridge (TSX:ENB)(NYSE:ENB) announced that it was acquiring a leading U.S. Gulf Coast light crude export platform for US$3 billion, which it expects to be immediately accretive with close to 90% contracted cash flows.

The export platform seems like a nice addition to Enbridge’s already diversified +40 streams of cash flow that has little uncertainty due to the highly contracted nature.

Enbridge stock is a rare dividend stock that provides both a high yield and dividend growth. In the past, Enbridge has grown at a high pace. From 1995 to 2021, its dividend-growth rate was 10%. Its most recent dividend hike this year was 3%, though. However, some growth is always better than no growth.

At $51.16 per share at writing, Enbridge stock offers a yield of 6.5%. It can potentially increase its dividend by about 3-5% per year over the next few years, which would lead to total returns of roughly 10% per year.

Fortis stock

Fortis (TSX:FTS)(NYSE:FTS) stock is another Canadian Dividend Aristocrat you can trust to increase its dividend for years to come. It has increased its dividend every single year for nearly half a century — one of the longest dividend-growth streaks among TSX stocks. Investors can expect another dividend increase later this month!

Fortis is a leading North American regulated gas and electric utility with 10 utility operations with diversified regulatory risks. On top of this, 93% of its assets are for transmission or distribution. Therefore, its earnings are highly stable.

Currently, Fortis stock yields almost 3.5%. Management is 100% behind a growing dividend, projecting an average dividend-growth rate of about 6% through 2025.

Another quality utility stock

Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP) is another quality utility stock you can trust. Its dividend-growth streak is shorter than Fortis’s, because it was only spun off from Brookfield Asset Management more than a decade ago.

Expect the utility to regularly increase its cash distribution. Brookfield Infrastructure owns and operates one of the largest and most diverse global infrastructure portfolios.

It is a value investor and has an ongoing asset-recycling program that helps drive long-term returns. Since its inception in 2009, BIP’s total returns have been about 20% per year, outperforming its peers. As a top-notch investor with a keen eye for value, BIP accumulated an economic interest of close to 20% of Inter Pipeline during the pandemic market crash last year before making another move on the energy infrastructure company.

At writing, BIP stock yields 3.5%, and it will be increasing its cash distribution by 5-9% per year.

The Foolish investor takeaway

These dividend stocks should beat any GIC income or returns by miles, as long as you have a long-term investment horizon and can withstand the stock volatility.

The only fly in the ointment is the valuation of the dividend stocks. None are particularly attractively valued today. So, it would be safest if investors could purchase them when they provide decent discounts, such as during a market pullback.

That said, if I had to choose one to buy today, BIP would be my top pick for its track record of excellence and competitive advantage to invest globally at the best risk-adjusted returns.

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.

The Motley Fool owns shares of and recommends Brookfield Asset Management and Enbridge. The Motley Fool recommends Brookfield Asset Management Inc. CL.A LV, Brookfield Infra Partners LP Units, Brookfield Infrastructure Partners, and FORTIS INC. Fool contributor Kay Ng owns shares of Brookfield Asset Management, Brookfield Infrastructure, and Fortis.

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