Do you know what a 6% dividend yield can do to your portfolio? If you apply the rule of 72, a 6% annual yield can double your investment in 12 years. A 6% yield, when reinvested, can convert a $500/month investment into $395/month in passive income on a $79,000 portfolio in 10 years. You can harness the power of a 6% yield with two Canadian dividend stocks. They offer a 6% yield and grow dividends annually, allowing your passive income to fight inflation.
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Top Canadian dividend stocks offering a 6% yield
The top dividend stocks are the ones in which you have confidence that the company can pay dividends even in a recession. Only large-cap stocks with decades of dividend history can give such assurance. It is because these companies have survived the 2007 Great Recession, pandemic, and 1990s recession without dividend cuts.
I have identified two top stocks across different verticals that are offering a yield of over 6%.
Bank of Nova Scotia
Founded in 1832, the Bank of Nova Scotia (TSX:BNS) is Canada’s second oldest bank, providing banking services for over 190 years. And the interesting fact is it has been paying dividends since 1833. It has seen the World Wars, the Great Depression, 1980s stagflation, 2007 crisis, and more. But a recession can take even too big-to-fail banks down if they have too much exposure in one area like the Silicon Valley Bank.
Scotiabank has a diversified revenue stream of commercial and retail banking, global wealth management, and wholesale banking services. Among the big six banks, it has the lowest exposure to the United States (6.9%) and a diversified geographical presence in Mexico, Chile, Peru, and Columbia.
The bank’s Canadian business brings stability, and its Pacific Alliance business brings higher returns. While Scotiabank has expanded into different geographies, it follows the Canadian risk management approach. It increases liquidity and credit loss provision when the purchasing power of consumers is reduced.
The bank increased its liquidity ratio to over 122%, a 22% buffer if withdrawals increase suddenly. It also maintained an 11.5% common equity tier-1 ratio against risky assets (way above the 4.5% requirement) and increased provisions from $222 million to $638 million in the first quarter.
The bank is well-prepared to withstand a recession without cutting dividends. You missed the 6% yield as the stock continues to surge from its March dip caused by the U.S. banking crisis. But you can lock in several years of dividend growth that will reduce your cost per share and increase the yield over time.
The next Canadian dividend stock is Canada’s top telecom giant BCE (TSX:BCE). It has been paying dividends for over 40 years and has grown dividends in most years. BCE grew dividends consecutively for the last 14 years at a compounded annual growth rate of 5.7%.
The telecom giant has invested significantly in the 5G rollout. It expects to generate incremental cash flows for the long term as the proliferation of edge devices for mission-critical applications drive demand for 5G.
BCE completed major capital expenditures when the interest rate was low. The telco has manageable debt and strong cash flows to thrive in a recession without dividend cuts. It might pause dividend growth for a year or two in the worst-case scenario. But that seems unlikely.
Now is a good time to buy the stock and lock in a yield of over 6%. The company could continue to grow dividends by 5% annually, reducing the time it takes to double your money.