Anyone can use more passive income every month to help pay the bills. If you don’t need the extra income, you can reinvest it to earn even more passive income.
The market downturn has driven stock prices lower. Now, the market provides many opportunities for income investors to bank on passive income. It’d be silly for Canadians not to buy some shares in Bank of Nova Scotia (TSX: BNS) or Fortis (TSX: FTS), for example.
BNS stock yields +6%
The big Canadian bank stocks are perfect core holdings for passive income. Particularly, Bank of Nova Scotia stock has paid dividends every year for 189 years! It only froze its dividend for a short time period around the global financial crisis in 2010 and the pandemic in 2021, because of restrictions from the regulator, the Office of the Superintendent of Financial Institutions (OSFI).
OSFI would step in to prevent the federally regulated financial institutions from making dividend increases or share repurchases during economic times that are highly uncertain to ensure the soundness of the Canadian financial system.
At $66 per share, BNS stock trades at a cheap valuation — about 7.9 times earnings. This is a similar bargain level as during the last two recessions. Therefore, its dividend yield is also pushed up to about 6.2%. It now offers an attractive income, as illustrated through its historical yield range.
BNS Dividend Yield data by YCharts
The stock may be trading at a discount to its peers because of its exposure to higher-risk markets in the Pacific Alliance countries. However, its core Canadian operations alone earn more than enough to protect its dividend. Its payout ratio is estimated to be safe at about 48% of earnings this year.
The bank stock has traded at about $64-$67 for about 1.5 months. It could be basing, or the market could be waiting for a recession. Some economists are calling for a technical recession in Canada next year. In any case, BNS is an undervalued stock that’s worth at least a partial position here for immediate juicy passive income in a solid company that has an A+ S&P credit rating.
Fortis stock yields +4%
Another no-brainer buy in a blue-chip dividend stock is Fortis. Rarely does Fortis stock trade at a discount because of its predictability and diversity in quality utility operations that are 93% distribution and transmission assets across 10 utilities in North America.
In other words, the regulated utility is a low-risk business with predictable returns. In fact, it commands a premium long-term normal valuation of about 19.6. At $52 and change per share, the stock is fairly valued at roughly 19.3 times earnings.
The business is so defensive that it has increased its dividend through economic cycles for almost half a century. Management’s newest dividend guidance is a growth rate of 4-6% per year through 2027 that’s supported by a $22.3 billion, five-year capital program.
The 18% selloff from the utility stock’s peak is a good buy-the-dip opportunity to earn a nice, initial yield of 4.3%.
The Foolish investor takeaway
Any investment portfolio can benefit from earning passive income from solid dividend stocks. The market provides decently high yields in safe stocks such as BNS and Fortis. It’d be silly for conservative investors not to buy some shares now for their long-term investment portfolio.
