Looking for a Stable Passive Income? Consider These Top TSX Dividend Stocks

Consider three top Canadian dividend stocks for the long term.

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Many equity investors often focus disproportionately on growth, overlooking stability. Instead, your portfolio should be a combination of defensives and growth stocks that can play well in all kinds of markets.

So, even if you are an aggressive investor, some portion should be allocated to safe dividend stocks. It will create a steady passive-income stream for the long term, and their low correlation with broader markets will outperform during bear markets.

Canada offers many attractive options for passive income-seeking investors. Here are some of them:

Dividend stock #1

Often, investors pay more attention to the absolute dividend amount. However, it is the dividend yield that matters. It computes the quantum of cash amount paid to shareholders relative to its share price. Top Canadian energy pipeline company Enbridge (TSX:ENB)(NYSE:ENB) has one of the highest yields; it’s close to 6%.

That means if you buy 100 shares of ENB at its current market price of $58, you will shell out $5,800. But its dividends, yielding 6%, will pay you $348 annually.

Though it belongs to the energy sector, Enbridge’s earnings are not as volatile as a typical oil and gas producer. That’s because it earns stable cash flows, and crude oil prices hardly impact its earnings. As a result, Enbridge has increased its dividend for the last 26 consecutive years.

The company will likely keep on raising shareholder payout in the future mainly due to its predictable earnings. So, if you are looking for a low-risk investment proposition, Enbridge is an intelligent option that offers stable return prospects.

Dividend stock #2

My second pick for dividend investors is Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN). It currently yields 4.4%. Though the yield is lower than ENB, it is still higher than TSX stocks at large.

Algonquin supplies electricity, water, and gas to nearly one million customers in North America. It also has a significant interest in renewables generation with a four GW capacity.

Algonquin derives a big chunk of its earnings from regulated operations, which enables earnings stability and predictability. This bodes well for its shareholders for their stable, regular dividend payments.

AQN stock has returned 426% in the last 10 years, including dividends. That notably outperforms peer utility stocks. Algonquin’s renewable operations and superior earnings growth in the last decade drove these returns.

Dividend stock #3

Energy stocks have been on fire this year. Crude oil prices are comfortably sitting at US$110 a barrel. Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is one handsome pick in the Canadian energy space to play this rally.

It has returned 105% in the last 12 months and still offers decent upside potential. CNQ stock currently yields 4%, which is in line with its peers.

Canadian Natural will likely see higher earnings growth in the next few quarters, driven by rallying oil prices. This should get reflected in shareholder returns with stock appreciation and dividend hikes.

Investors should note that a dividend is not a guaranteed income. Companies may trim or suspend dividends to retain cash as earnings growth prospects change. For example, many energy companies suspended dividends early during the pandemic, as oil prices tanked. However, CNQ was an exception. It continued to raise dividends, driven by its strong balance sheet and earnings visibility.

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 recommends CDN NATURAL RES and Enbridge. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

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