How I’d Invest $20,000 to Earn Reliable Passive Income Today

If you want to turn up your passive income and total-return strategy, check out these top Canadian stocks for a long-term hold.

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With inflation continuing to soar, Canadians are eagerly searching for different ways to earn passive income. While small businesses/franchises, side gigs, and private real estate investments (like a condo or vacation rental) can be obvious options for passive income, they can also take a tonne of work, time, and money to manage.

Investing in stocks can be a great way to earn passive income

Investing in the stock market for passive income is a great alternative. You need some initial capital and a decent amount of investment due diligence.

Other than that, often the best thing an income investor can do is sit on their hands and let their stocks do the work for them. Now, stocks can be very volatile over the short term, but if you take a long-term (five or more years) approach, you can earn really solid returns.

If I had a long investment horizon and $20,000 to invest, here are three TSX stocks I’d consider buying today. You could earn nearly $800 a year with this mini passive-income portfolio.

Brookfield Infrastructure: A diversified utility for growing passive income

Brookfield Infrastructure Partners (TSX:BIP.UN) stock is down 17% over the past year. Its dividend yield has jumped from around 3.3% last year to over 4.8% right now. In fact, this stock has not been this cheap since early 2019 (other than the March 2020 market crash). Right now, it is trading for 12.8 times AFFO (adjusted funds from operation) versus its five-year mean of 16.

Investors get to own a diverse portfolio of highly contracted/regulated assets. These include railroads, ports, home utility services, toll roads, natural gas processing plants, pipelines, and cell towers.

If you put $6,666 ($20,000 divided by three) into this stock today, you would earn $79.42 every single quarter. The company has a great record growing its dividend, so your passive income should grow, too.

CNR: A long-term, dividend-growth stock

Canadian National Railway (TSX:CNR) may not pay the biggest stream of passive income, but its dividend has grown impressively. Ever since 1996, CN has paid a dividend. Since then, its dividend has grown from $0.067 per share to $3.16 per share today. That’s a 4,600% increase!

CN has a dominant transport network across Canada and the United States. Its track is economically essential and simply irreplaceable. As a result, it has a great competitive position and strong pricing power. Over the past decade, earnings per share have risen around 10% annually.

If you put $6,666 into this stock, you’d only earn $33.73 of passive income quarterly. However, CN stock is a total-return story, so you own it for both capital gains, share buybacks, and dividends.

Canadian Natural Resources: A value-priced dividend grower

Speaking about stocks that have paid long-term dividends, Canadian Natural Resources (TSX:CNQ) ought to be on that list. It has increased its dividend by an approximate 20% compounded annual rate for 23 years! After a recent 10% decline, CNQ stock pays a 5% dividend yield.

Even though CNQ is a volatile stock, its operations are very consistent. It is Canada’s largest energy company with around one million barrels of oil equivalent per day in production.

The company has nearly 30 years of reserves and an incredibly low cost to produce. CNQ has been extremely shareholder friendly, and executives hold a large stake in the business.

A $6,666 investment would earn $84.60 of passive income every quarter. If oil prices move to the US$80 range, there is a good chance for some special dividends (like in 2022).

Brookfield Infrastructure Partners43.66152$0.5225$79.42Quarterly
Canadian National Railroad156.1142$0.79$33.73Quarterly
Canadian Natural Resources70.6094$0.90$84.60Quarterly
Prices as of March 24, 2023

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 Robin Brown has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners, Canadian National Railway, and Canadian Natural Resources. The Motley Fool has a disclosure policy.

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