Need $500 in Passive Income Each Month? These 2 TSX Stocks Are Your Top Bets

Monthly dividend stocks such as Keyera and Pembina can help shareholders create a stable stream of passive income in 2023.

| More on:
money cash dividends

Image source: Getty Images

The best way to build generational wealth is by creating multiple income streams. Investing in dividend stocks is a capital-efficient way to generate a passive-income stream compared to traditional real estate investments. Here, you can start by investing even a few hundred dollars in quality dividend stocks and increase your exposure over time.

Yes, investing in the equity markets carry significant risks. In addition to volatility in stock price movements, dividend payouts are not a guarantee. But this asset class has consistently outpaced inflation to deliver steady returns to shareholders over the long run.

So, you need to identify fundamentally strong companies with robust balance sheets and the ability to generate cash flows across business cycles. Here, I have identified two such TSX stocks that can help you earn $500 in monthly dividend income.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Keyera$30.041,665$0.16$266Monthly
Pembina Pipeline$46.381,078$0.218$235Monthly

Keyera

The first dividend stock on my list is Keyera (TSX:KEY), an energy company that pays you a monthly dividend of $0.16 per share, indicating a forward yield of 6.4%. Keyera operates in the energy infrastructure space, and the midstream company is somewhat immune to fluctuations in commodity prices.

In the first nine months of 2022, Keyera increased adjusted earnings by 80% year over year to $1.86 per share due to an uptick in energy prices. In this period, its distributable cash flow per share stood at $2.49, which suggests the company’s payout ratio is easily sustainable at 58%.

A low payout ratio allows Keyera to invest in capital expenditures and strengthen its balance sheet as well as increase dividends. It has already allocated close to $1 billion to the KAPS project, which should increase cash flows and dividends in the future. Keyera’s dividends have increased by 6.5% annually in the last two decades.

Pembina Pipeline

Another energy infrastructure company, Pembina Pipeline (TSX:PPL) pays investors a monthly dividend of $0.218 per share, translating to a forward yield of 5.6%. In the third quarter of 2022, Pembina Pipeline reported sales of $2.8 billion — an increase of 29% compared to the year-ago period. Further, Pembina raised guidance for the fourth quarter and hiked the dividend by 3.6% year over year.

In the last four quarters, Pembina’s net income stood at $2.7 billion, while its revenue totaled $11.5 billion, indicating a net margin of 23%, which is exceptional for a company part of a capital-intensive sector.

Similar to Keyera, even Pembina Pipeline has a low payout ratio of 53%, providing it with enough room to increase dividends, especially in an environment of elevated oil prices.

Priced at less than 10 times 2022 earnings, Pembina Pipeline is a profitable company that has already delivered outsized gains to long-term investors.

Due to its contracted cash flows, Pembina can generate consistent profits across business cycles. Additionally, these contracts are long term in nature and indexed to inflation, making it a top bet in 2023.

The Foolish takeaway

In order to earn $500 in monthly dividends, investors need to distribute $50,000 equally between the two stocks. But it does not make financial sense to allocate huge amounts of capital to just two companies. Instead, investors should identify similar companies with stable cash flows and attractive dividends to create a diversified portfolio of dividend stocks.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Keyera and Pembina Pipeline. The Motley Fool has a disclosure policy.

More on Dividend Stocks

money cash dividends
Dividend Stocks

This 8.39% Dividend Stock Can Pay $100 Cash Every Month

Consider investing in this monthly dividend stock at current levels to lock in high-yielding monthly distributions to create a good…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

Here’s the Average TFSA Balance in 2024

The Bank of Montreal (TSX:BMO) says that the average TFSA balance is $41,510, far below the maximum.

Read more »

A glass jar resting on its side with Canadian banknotes and change inside.
Dividend Stocks

Investors: Here’s How to Make $1,000 Each Month in Retirement

Here's how you can easily make $1,000 in monthly passive income in retirement in Canada, without taking on too much…

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer TSX Stocks I’d Buy Right Now Without Hesitation

Three TSX stocks that continue to overcome massive headwinds and beat the market are no-brainer buys right now.

Read more »

calculate and analyze stock
Dividend Stocks

TFSA Investors: 2 Top TSX Dividend Stocks to Buy on a Dip and Hold Forever

These top TSX dividend stocks now offer attractive yields and big potential capital gains.

Read more »

grow money, wealth build
Dividend Stocks

1 Dividend Stock to Buy for Growth and Stay for a 5.5% Yield

This dividend stock has been rising higher, but more could certainly be on the way. Now is the time to…

Read more »

A worker uses a double monitor computer screen in an office.
Dividend Stocks

2 Affordable Passive-Income Stocks That Pay Monthly

Are you looking for some passive-income stocks to build a recurring income stream? Here are two great options you can…

Read more »

woman data analyze
Dividend Stocks

Magna International Is Starting to Get Ridiculously Oversold

An undervalued stock with strong fundamentals and visible growth potential is a screaming buy for long-term gains.

Read more »