Canadian Dividend Aristocrats — stocks that regularly grow dividends over multiple years (typically 25 consecutive years) — are the perfect source of passive income. Canada’s economy is based on hard assets and commodities. Since these are essential businesses that are much more resilient to the business cycle, more Canadian companies are heading towards the ranks of those that consistently pay growing dividends.
Put simply, Canada’s best dividend stocks should be on your radar if you’re trying to generate passive income over the long term. Here are the top two Dividend Aristocrat contenders you should keep an eye on.
Passive income stock #1
Utility companies are natural monopolies. The industry is tightly regulated which creates a barrier to entry. Meanwhile, the capital requirements are another major barrier to entry. Once a utility has created infrastructure and secured long-term contracts, it can expect to generate steady cash flow for decades.
Canadian Utilities (TSX:CU) is a prime example. Canada’s largest power producer has assets worth $20 billion. That makes it one of the largest utility companies in North America. Economies of scale coupled with pricing power preserve the company’s profit margins over time. This is why Canadian Utilities has steadily expanded its operations over 70 years.
The company also has a long track record of dividend growth. Annual payouts have expanded every year for over 50 years. The stock still offers an attractive dividend yield of 4.3% at the current market price.
Investors looking for reliable passive income over multiple generations should add this stock to their watch list.
Passive income stock #2
Slate Grocery REIT (TSX:SGR.U) is another excellent passive income stock. The real estate investment trust owns a vast network of grocery store properties across the United States. Big store retailers and grocery chains are highly resistant to inflation and recession. That means Slate Grocery has the best tenants in the industry.
In fact, Wal-Mart and Kroger account for 25% of the company’s entire rental portfolio. These giants can deliver rent payments regardless of economic conditions. That’s why Slate Grocery has plenty of visibility on cash flow and net income.
The strong cash flows have allowed management to expand dividend payouts at an average annual rate of 2% over the past five years.
However, the company has slipped under the radar. The stock is still undervalued and offers an unbelievable 7.4% dividend yield at the current market price. That’s despite the fact that the dividend payout ratio is only 80%.
Put simply, Slate Grocery is one of the best passive income stocks on the market right now.
Bottom line
Dividend Aristocrats are reliable sources of passive income. These companies have robust business models, pricing power, and hard assets that make them more immune to the business cycle. That means reliable dividend payments every year.
Commercial landlord Slate Grocery REIT and electricity giant Canadian Utilities are both top picks for passive income in 2022 and beyond.
