Creating a passive-income stream is more than finding and investing in a few high-yield dividend stocks. You must look into dividend sustainability and the stock’s performance/potential. High-yield stocks that are consistently going down may erode your capital at a faster pace than you can accumulate returns from these investments (via dividends).
It’s a good idea to look for a good mix of both (dividend and growth potential), and an intelligent way to do it is to choose from the pool of top stocks trading on the TSX.
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An energy stock
After a glorious bullish phase, the energy sector in Canada is now going through a stagnation phase that may or may not turn into a full-blown correction. Waiting for that correction might be prudent for most energy stocks, but Pembina Pipeline (TSX: PPL) may be worth buying right now.
As a pipeline company, Pembina is a bit more stable compared to most upstream and downstream companies in Canada, which also reflects in the stock.
It’s also one of the few energy companies fully recovered after the 2014 crash before the post-pandemic bull market phase pushed the whole sector up. This makes it a healthy buy from a capital-appreciation/preservation perspective, and it’s just as impressive a purchase for its dividends.
The company has steadily grown its payouts for several years and has only recently switched from a monthly payout frequency to a quarterly one, keeping the payout amount the same as last year. The payout ratio is quite stable, under 50%, and the yield is very attractive at 6.15%. At this yield, you can generate a passive-income stream of over $153 per month with just $30,000 invested.
A bank stock
Canadian bank stocks are among the top dividend investment choices in the country. The Big Five banks are all Dividend Aristocrats and have grown their payouts for at least a decade. However, if you are buying from a passive-income perspective and capital appreciation is a secondary investment goal, Canadian Imperial Bank of Commerce (TSX: CM) stands out from other bank stocks.
The bank is currently offering a juicy 6% yield, which is the second highest in the sector. With a capital of about $30,000 invested in this bank, you can generate a monthly passive income of about $150.
One reason this bank might be a better pick than the banking stock offering the highest yield is its capital-appreciation potential. The bank grew by about 42% in the last decade — enough to keep pace with inflation. So, if the stock keeps increasing at this or a better rate in the future, your capital won’t be eroded by inflation, and you will accumulate decent returns on top of that, thanks to its healthy dividend yield.
Foolish takeaway
The top superb TSX stocks are ideal candidates for passive income for reasons beyond financial stability, yields, and dividend sustainability. They are among the giants in their respective sectors with healthy business models, making them ideal long-term holdings (for reliable passive income).
