Dividend Stocks to Create Passive Income for Early Retirement

Bank of Montreal and another TSX dividend stock that can help fund a retirement income stream for life.

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It’s been a rough week for Canadian investors, with banks and other dividend stocks taking a big uppercut to the chin. Indeed, sentiment has gone from hopeful to fearful in just a few trading sessions. With the U.S. Federal Reserve (the Fed) still in hawk mode, questions linger as to whether there’s enough incentive to hit the pause button with rate hikes.

The feeling of unease is almost palpable, as pain from the tech sector works its way into the banking scene. U.S. bank stocks were under considerable pressure in the back half of last week. Canadian banks have also felt a bit of the shockwaves.

Bank of Montreal (TSX:BMO) slid around 2.7% on Friday, as it fell in sympathy with the broader basket of U.S. bank stocks. Yet, the Canadian banks are incredibly well capitalized and seem to be more insulated from the idiosyncratic risks that ultimately led to a bank failure in Silicon Valley.

Dividend stocks feeling the pressure

In any case, bank stocks are not immune from economic woes and other shocks. Indeed, every couple of decades, there’s a shocker that weighs heavily on all banks. For investors, it’s important to evaluate the extent of the damage that such a black swan event could cause.

In the case of Canadian banks (and other Canadian firms), I’d argue the sudden downward move is unwarranted. If anything, the last few days of choppy moves could be a terrific buying opportunity for brave investors who know the score.

As stocks fall, their yields swell. This gives dividend investors a chance at getting more passive income for a lower price. Let’s look at two names I’d strongly consider after the wave of market volatility.

Bank of Montreal

Bank of Montreal and the other Big Six Canadian banks weren’t hit as hard as U.S. banks this past week, but they still took a bit of a hit. I don’t think the punishment was warranted. Bank of Montreal has a fairly sizeable commercial loan business, but it’s far better capitalized than many of the regional banks that may be more prone to liquidity issues.

The big bank has the financial flexibility to make it through a recession, all while it integrates its recent acquisition of Bank of the West. For now, bank stocks are scary. And that makes BMO stock a very intriguing play for dividend seekers. The stock trades at 6.1 times trailing price-to-earnings (P/E), with a 4.7% yield. The payout is as healthy as it is “growthy.”


BCE (TSX:BCE) is another dividend favourite that’s felt the claw of the bear. The stock is down around 19% from its peak and is at risk of hitting 2022 lows as markets turn on stocks. At 20 times trailing P/E, with a 6.4% dividend yield, BCE stock stands out as a magnificent play to fund any passive income stream.

As recession moves in, BCE is bound to feel pressure on its top- and bottom-line. Still, the Big Three telecoms have been through tough times before, and they’ve managed to recover in due time. If you’re investing for the next 10 years or more, I find it tough to pass up on the value proposition at this juncture. The macro headwinds seem more than baked into a name that has a track record of spoiling investors through thick and thin.

The bottom line for passive income seekers

It’s getting harder to finance a retirement amid inflation and market chaos. Still, buying the dip in top blue-chip dividend stocks like BCE and BMO stock can help keep your long-term plans intact.

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 Joey Frenette has positions in Bank Of Montreal. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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