3 Stocks That Could Give You a Solid Source of Passive Income

Trying to build a source of passive income? Here are three stocks you should add to your portfolio!

| More on:
Various Canadian dollars in gray pants pocket

Image source: Getty Images

Investing can help you achieve financial independence, which is the term given when investments can cover someone’s day-to-day living expenses. Granted, it won’t happen overnight.  When it truly comes down to it, financial independence requires a source of income greater than or equal to the income you would expect to get from a job. Therefore, it’s imperative that investors find stocks that can supply a solid source of income over many years. In this article, I’ll discuss three stocks that could do just that.

This is one of the best dividend stocks in Canada

When looking for stocks to hold, with the goal of generating passive income, investors should turn to the list of Canadian Dividend Aristocrats. This is a list of companies that have been able to increase dividend distributions for at least five consecutive years. Near the top of the list, investors can find Fortis (TSX:FTS)(NYSE:FTS). At 47 years, it claims the second-longest active dividend-growth streak in Canada.

Fortis is able to do this because of intelligent capital allocation by its management team. Investors may notice that Fortis’s payout ratio is much higher than some other Dividend Aristocrats. However, its management team has been able to navigate financial waters at such a high level, that even the Great Recession didn’t stop it from raising its distribution. Fortis is a top TSX dividend stock that should be in your portfolio.

A stock that has paid a dividend for nearly 200 years

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) announced its initial dividend at a rate of 3% per year in 1833. Since then, the company has never missed a dividend payment. That means Bank of Nova Scotia has managed to pay a dividend for 189 years. Today, its dividend offers investors a of 4.28%, making it a very attractive stock to hold. Investors may not that the company is only listed as having a dividend-growth streak of 11 years. This is because Bank of Nova Scotia was unable to continue growing its distribution through the Great Recession.

Bank of Nova Scotia is a member of the Big Five. This is a group of five banks which dominate the Canadian banking industry. What differentiates Bank of Nova Scotia from its peers is its international diversification. With 2,000 branches and offices across 50 countries, it is known as Canada’s most international bank. With that level of diversification, Bank of Nova Scotia should have protection against a massive slowdown in its business if one region were to experience a period of economic uncertainty.

This stock is growing its dividend at a very fast rate

Investors should also take note of how fast a company is able to raise its dividend. A failure to beat the rate of inflation will result in a loss in buying power over time. Personally, I aim to hold companies that raise dividends at a compound growth rate of 5% or greater. That would even keep a stock’s dividend growing at a faster rate than inflation has over the past year and a half. goeasy (TSX:GSY) is a stock whose dividend has grown at a very fast rate over the past seven years.

Since 2014, goeasy’s dividend has grown 776%! That represents a compound annual growth rate of 34%. Although goeasy’s forward dividend yield is quite low (1.74%), so is its payout ratio. This means that the company could be able to continue growing its distribution without issue in the coming years.

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 Jed Lloren owns BANK OF NOVA SCOTIA. The Motley Fool recommends BANK OF NOVA SCOTIA and FORTIS INC.

More on Dividend Stocks

grow dividends
Dividend Stocks

1 Cheap Stock to Turn a $20,000 TFSA Into $267,000

If you're looking to boost your TFSA, you need a cheap stock that you can hold for decades. And I…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

2 of the Best Monthly Passive-Income Stocks to Buy in Canada Right Now

Here are two of the best Canadian monthly passive income stocks you can consider buying right now to hold for…

Read more »

stock analysis
Dividend Stocks

3 TSX Stocks I Will “Never” Sell

Few companies offer a powerful enough combination of dividends and growth potential to deserve a permanent place in your portfolio.

Read more »

value for money
Dividend Stocks

2 Cheap TSX Stocks for TFSA and RRSP Investors to Buy Now

These stocks look attractive today to buy for a TFSA or RRSP portfolio.

Read more »

Increasing yield
Dividend Stocks

3 TSX Stocks With High Dividend Yields

These three high-yielding dividend stocks would be excellent additions to your portfolio in this volatile environment.

Read more »

Payday ringed on a calendar
Dividend Stocks

New Investors: 3 Top TSX Dividend Stocks That Pay Cash Monthly

Canadian investors looking for monthly dividends have plenty of options on the TSX. Here's three of my favourite stocks for…

Read more »

woman data analyze
Dividend Stocks

These U.S. Stocks Are No-Brainer Additions to Your Portfolio

Buy these two no-brainer U.S. stocks if you want to gain exposure to international stocks in your self-directed portfolio.

Read more »

Value for money
Dividend Stocks

1 Value Stock Every Canadian Investor Should Own

This value stock not only has a solid present, but a stable future at incredibly cheap and even oversold prices!

Read more »