Canadians can easily create a monthly stream of passive income by investing in quality dividend stocks. This alternative stream of cash flow can be used to pay your utility bills over even a part of your mortgage. You can reinvest these dividends to add other quality stocks to your portfolio and benefit from compounded gains over time. Over the long term, dividend investors should also benefit from capital gains.
Further, if these stocks are held in a Tax-Free Savings Account, or TFSA, returns in the form of capital gains as well as dividend payouts will be exempt from Canada Revenue Agency taxes.
So, let’s take a look at the top three TSX stocks that pay you monthly dividends in 2023.
Keyera
A company operating in the energy sector, Keyera (TSX: KEY) offers investors a forward yield of 6.2%. Despite the cyclicality associated with oil prices and energy stocks, Keyera has generated earnings across market cycles due to its contracted cash flows. A diversified midstream operator, Keyera’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) surged over $1 billion in 2022 for the first in the company’s history.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Keyera | $31.09 | 322 | $0.16 | $51.52 | Monthly |
| Pembina Pipeline | $45.76 | 219 | $0.218 | $47.75 | Monthly |
| Exchange Income | $54.15 | 185 | $0.21 | $38.85 | Monthly |
Its distributable cash flow in 2022 stood at $654 million, indicating a payout ratio of less than 60%. So, Keyera has enough room to increase dividends, reduce debt on its balance sheet, and reinvest in capital expenditures.
Keyera has invested $1 billion towards the KAPS project, which should be a key driver of future earnings. The company explained, “With KAPS now in the line-fill phase we are excited to integrate our North region Gathering and Processing assets with the heart of our integrated value chain at Fort Saskatchewan, unlocking opportunities for future growth.”
Pembina Pipeline
Similar to Keyera, Pembina Pipeline (TSX: PPL) is also part of the energy infrastructure vertical and currently offers you a forward yield of 5.6%.
In the quarter that ended in September, Pembina increased its sales by 29% to $2.8 billion, while total revenue stood at $11.5 billion in the last four quarters. In the last 12 months, Pembina reported a net income of $2.7 billion, indicating a margin of 23%.
A higher pricing environment allowed Pembina to report record profit margins while enabling it to increase dividends consistently. It recently hiked payouts by 3.6% year over year. Pembina Pipeline also enjoys a low payout ratio of 53%.
Exchange Income
The final monthly dividend stock on my list is Exchange Income (TSX: EIF). Operating in the aerospace manufacturing sector, Exchange Income’s dividend yield is about 4.7%.
EIF has been among the top-performing stocks on the TSX, rising 275% in the last 10 years. Despite its outsized gains, the company is priced at 14 times forward earnings, which is quite reasonable.
EIF stock is currently trading at a discount of 12%, given consensus price target estimates. After accounting for its dividend yield, total returns will be closer to 17% in the next 12 months.
The Foolish takeaway
An investment of $10,000 in each of the three stocks discussed here will allow shareholders to earn $137.5 in monthly dividend income, translating to annual payouts of $1,650. In case the companies increase dividends by 7% annually, your monthly payout will likely double to $275 in the next 10 years.
