Economic uncertainty and a challenging macro environment continue to haunt investors and individuals. In the last year, several companies have laid-off employees as corporates aim to reduce their cost base to tide over a difficult period of rising interest rates and inflation.
These periods of economic downturns show us the importance of creating a passive stream of income. You ideally need to have multiple income streams, which will allow investors to build long-term wealth and accelerate retirement plans.
One passive income-generating strategy is to purchase shares of blue-chip dividend stocks. Generally, dividend-paying stocks report consistent profits and positive cash flows, a portion of which is distributed to shareholders via dividends. The most profitable companies increase these payouts each year, making them ideal bets for income-seeking investors.
|COMPANY||RECENT PRICE||NUMBER OF SHARES||DIVIDEND||TOTAL PAYOUT||FREQUENCY|
|National Bank of Canada||$52.29||688||$0.90||$619||Quarterly|
Here are two such TSX stocks that will help you earn $1,000 in dividend income each quarter.
TC Energy stock
Down 31% from all-time highs, TC Energy (TSX:TRP) currently offers investors a tasty dividend yield of 7.2%. Since 2000, the energy giant has returned 11% annually to shareholders after adjusting for dividends.
TC Energy is an energy infrastructure behemoth with $114 billion in assets and operates a network of natural gas pipelines spanning 93,700 kilometres. These pipelines transport natural gas from supply basins to power plants, industrial facilities, LNG export terminals, among other markets. The energy company also owns and operates natural gas storage facilities and has a liquids pipeline system of 4,900 kilometres.
Additionally, TC Energy has interests in seven power generation facilities that generate 4,300 megawatts annually. These facilities are powered by natural gas and nuclear fuel sources.
Around 95% of TC’s comparable EBITDA (earnings before interest, tax, depreciation, and amortization) is regulated, making it almost immune to fluctuations in commodity prices.
The midstream heavyweight is investing $34 billion through 2028 in capital expenditures, which should increase future cash flows and allow the company to increase dividends. In the last two decades, TC Energy has raised dividends by 6.2% annually, showcasing the resiliency of its business model.
Analysts remain bullish on TRP stock and expect it to surge over 18% in the next 12 months. After accounting for dividends, total returns will be closer to 25%.
National Bank of Canada stock
Another popular TSX stock is the National Bank of Canada (TSX:NA). Shares of the TSX bank stock are down 8.5% from all-time highs, increasing its dividend yield to 4.1%.
In fiscal Q1 of 2023 (ended in January), the National Bank of Canada reported a net income of $881 million, or $2.49 per share, compared to a net income of $930 million,or $2.64 per share, in the year-ago period. Its revenue growth across businesses was offset by higher non-interest expenses and higher provisions for credit losses.
Banks are cyclical and underperform the markets in a downturn. During bear markets, bank stocks trade at a discount, allowing you to buy on the dip. Right now, NA stock is priced at 10 times forward earnings, which is quite cheap. It’s also trading at a discount of 15%, given consensus price target estimates.
The Foolish takeaway
In case you want to earn $1,000 in quarterly dividends, you will have to invest around $36,000 in each of these two stocks. But investing such a huge sum in just two companies is quite risky as you need to diversify holdings and lower overall risk. It makes sense to identify similar stocks across sectors that offer tasty dividend yields and create a robust portfolio of income-generating blue chips.