Canadian investors can benefit from getting juicy passive income from high-yield dividend stocks. The income from these eligible dividends are taxed at lower rates than your ordinary income if the shares are held in your non-registered account.
Thanks to the stock market dip of approximately 6.5% in the last couple of weeks, you can now look into these blue-chip stocks for higher dividend income.
Bank of Nova Scotia
North American bank stocks have been weighed down due to the failure of three U.S. regional banks this year with the most notable and largest one (so far) being Silicon Valley Bank. Altogether, they had total assets of about US$331 billion at the time of failure. The fear is that this could trigger a ripple effect across the North American and even the global financial system. That is the worst-case scenario. The fact is, regulators have swooped in quickly to seize Silicon Valley Bank’s assets that totaled about US$209 billion at the time of failure.
Bank of Nova Scotia (TSX:BNS), in particular, tends to offer the highest dividend yield among its large Canadian bank peers. The international bank has paid dividends every year since 1833. Its payout ratio is estimated to be about 54% of earnings this year as the bank expects an earnings decline of about 10%.
In a higher interest rate and potential recessionary environment, the regulators could step in to prevent the big Canadian bank stocks from raising their dividends and buying back their shares.
At $64.83 per share at writing, BNS stock offers a juicy yield of 6.4%. Its earnings and payout ratio have the buffer to protect its dividend, even though its payout ratio will probably be a little higher than usual this year.
TC Energy (TSX:TRP) stock is trading at the low end of its range since the pandemic. Multiple factors are at play in weighing on the stock. First, higher interest rates have made fixed-income vehicles better competitors (versus dividend stocks) as income investments. Second, the company had major cost overruns at its Coastal GasLink project, which was made worse by higher inflation.
However, the dividend stock chugged along and continued its dividend-growth streak last month. It raised its dividend by 3.3%. The selloff of 31% of the stock from its 2022 and all-time high makes it a value stock for passive income. At $51.31 per share at writing, TC Energy yields close to 7.3%.
How to make $6,000 in passive income per year
Investors can consider parking some of their long-term capital in blue-chip, high-yield stocks like BNS and TRP for passive income. When the central banks reduce interest rates in North America, it could stimulate the economy and would likely trigger price appreciation in these undervalued stocks.
To make $6,000 in passive income per year from each stock, buy the respective number of shares shown in the table below. If you want to make $3,000 in passive income annually from each, divide the number of shares by two.
|COMPANY||RECENT PRICE||NUMBER OF SHARES||DIVIDEND||TOTAL PAYOUT||FREQUENCY|
Investors would be happy to hear that these two stocks are more likely to increase their dividends over time, which means more passive income for them!