Investing in dividend stocks can help you build a source of passive income. By focusing on that investment style, you could significantly supplement or even replace your primary source of income. That could allow you to spend more time focusing on things you’re passionate about. However, it’s important that investors choose the right stocks to hold in a portfolio. In this article, I’ll discuss three stocks that passive-income investors should hold today.
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Start with the best
When looking for dividend stocks to add to a portfolio, investors should first refer to the list of Canadian Dividend Aristocrats. This is a list of stocks that have been able to increase dividend distributions for at least five consecutive years. Because of that history of continued dividend raises, I hold these stocks in higher regard than dividend stocks that don’t place on the list.
Fortis (TSX: FTS)(NYSE: FTS) stands out among Canadian Dividend Aristocrats, in my opinion. The company has managed to increase its dividend in each of the past 47 years. That gives it the second-longest active dividend-growth streak in the country. Although Fortis’s payout ratio tends to run higher in some years, investors should remain confident in this company due to its long history of intelligent capital allocation.
Look at dividend growth
Investors should also look at dividend-growth rates. If a stock is unable to raise its dividend faster than the inflation rate, then investors will lose buying power over time. During years like this one, where inflation is running rampant, fewer dividend stocks may be attractive from this point of view. Canadian National Railway (TSX: CNR)(NYSE: CNI) is one stock that investors should consider holding in their portfolios today.
Over the past five years, it has grown its dividend at a CAGR of 12.2%. That outperforms even this year’s inflation rate. In addition, Canadian National has managed to increase its dividend in each of the past 25 years. This makes it another Canadian Dividend Aristocrat and one of only 11 TSX-listed stocks to currently hold a dividend-growth streak of a quarter century or longer.
This company has been paying dividends for nearly two centuries
In addition to looking for companies that can increase dividends, it’s important to consider how long a company has paid dividends. If a company has a very long history of providing dividends, I may gravitate towards that stock more than others. Take Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) for example. This Big Five bank is a tremendous dividend stock. It first paid shareholders a dividend on July 1, 1833. That represents 189 years of continuous dividend payments.
In addition, Bank of Nova Scotia offers investors a very attractive dividend yield of 5.50%. That gives you good value for your money, as investors won’t need to buy too many shares to see a nice sized dividend in return.
