2 of the Best Stocks to Buy for Fast-Growing Passive Income 

In this economy, you need a passive income that grows fast enough to beat inflation in any situation. These two stocks give you that.

| More on:

It’s that time of year when companies revisit dividend payments and distributable cash flows and decide the dividend per share for 2023. If you seek to invest in stocks to earn passive income, now is the chance to lock in the 2023 dividend growth. 

What 2023 holds for dividend stocks? 

The TSX has some dividend aristocrats that have increased their dividends even in a recessionary environment. And 2023 doesn’t ring a recession warning bell for Canada, so say economists in a Reuters article. While economists cut Canada’s GDP forecast for 2023, a few sectors like oil and gas and telecom remain strong. Why so? 

The global energy crisis triggered by the Russia-Ukraine war will keep oil and gas prices at their current inflated levels, bringing higher cash flows to energy companies for the next few years. The growing adoption of artificial intelligence (AI) and the cloud will accelerate the uptake of 5G. The fifth-generation technology brings broadband-like internet to edge devices. The adoption of AI and other advanced technologies will drive 5G subscribers.

The above global trends will help market leaders maintain healthy cash flows in their respective industries. No doubt, BCE (TSX:BCE) and Enbridge (TSX:ENB) are some of the best dividend stocks to earn growing passive income in 2023 and beyond. 

BCE stock 

BCE’s three-year accelerated fibre and 5G build-out are nearing an end in 2022. Almost 80% of its build-out is complete. It is on track to make 5G+ available to ~60% of the addressable market by year-end. A wider network reach has helped BCE set a new record in net additions to wireless subscribers. This subscriber growth has increased BCE’s free cash flow (FCF) by 13.4% year over year in the third quarter. The telecom is on track to grow FCF by 2–10% in 2022. 

BCE increased its dividend per share by 5% in 2021 when its FCF fell 11% as it channelled the capital towards its 5G network. The FCF growth will continue for the next few years as more devices connect to the internet, increasing its subscriber count and average revenue per user (ARPU). As capital expenditure is reduced in 2023, BCE might have more FCF to distribute to shareholders. 

BCE strives to grow dividends by 5% or more annually while maintaining its target payout ratio of 65% to 75% of FCF. The telecom operator increases its annual dividends in April after the full-year earnings are released. Regular investments in BCE stock can grow your passive income at an average annual rate of 5%. 

Enbridge stock

Enbridge is another stock that gives regular passive income and also grows it. Before the pandemic dried oil pipelines, Enbridge grew its dividends by ~10%. Enbridge slowed its dividend growth to 7.3% in the 2008 Financial Crisis and accelerated it to 12.1% during the recovery. This change in dividend growth depends on Enbridge’s distributable cash flow (DCF). 

The company’s strategy is to pay out 60–70% of its previous year’s DCF. In 2022, it paid a dividend per share of $3.44 (69% of its 2021 DCF). 

Enbridge increases its DCF by increasing its toll rate for transmitting oil and gas and adding new pipelines. It is on track to bring $3.8 billion worth of projects into service this year that could increase its DCF/share by 8% to $5.35. Moreover, the global energy crisis has kept Enbridge’s pipelines running at full capacity. If the company maintains its 70% payout ratio, it could increase its 2023 dividend per share by 7.3% to $3.69 in December.

Investor takeaway 

Investing in stocks that regularly grow dividends can help you achieve inflation-beating passive income. You could maximize your returns by investing a small amount monthly in such dividend aristocrats. Over time, you will have significant investments that can generate material passive income. By diversifying your dividend portfolio across sectors and company size, you can reduce dependence on an individual stock. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »

money cash dividends
Dividend Stocks

How 1 Absurdly Cheap Stock Can Generate $100 in Monthly Passive Income

You can generate $100 or more in monthly passive income from one high-yield stock trading at an absurdly cheap price…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »