These 2 Canadian Dividend Stocks Are a Great Way to Generate Passive Income

TD Bank (TSX:TD) stock and another dividend play may be still worth the risk if you seek big passive income and upside.

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I see many great dividend stocks on the TSX Index that passive-income investors may wish to consider, even in today’s hectic and uncertain market. A recession could bring forth a sudden pick-up in volatility in the second half. But any such volatility should be viewed as more of an opportunity to buy on dips, rather than a sign to “get out” or go into some sort of panic.

It’s never easy to move through a recession year. Still, investing in a recession does not always have to be a money-losing proposition that requires one to go on damage control.

Getting greedy on the yield front may not seem wise for passive-income investors at this juncture. Why do that when Guaranteed Investment Certificates (GICs) and bonds offer more on the rate front these days?

As always, though, investors must always consider the risk/reward from any investment. And right now, I think there’s more value to be had in some of the more battered dividend plays out there.

Yes, they are riskier than your run-of-the-mill, 4.5%-yielding GIC. That said, such names also have more upside and a potential margin of safety. If you obtain a wide enough margin of safety, you can minimize your chances of a considerable loss, even through the most challenging of macro environments.

With a long-term horizon, the chances of losing big money from such a value play can be lower, and the rewards relative to a risk-free security (such as a GIC) could have the potential to be far larger.

Let’s get into two dividend stocks that I think could be more rewarding than a GIC, even in a higher-rate world.

TD Bank

TD Bank (TSX:TD) stock has been through quite the ride over the past year. The U.S. regional bank pressures impacted TD stock in a big way.

After walking away from a regional banking deal, many pundits may question whether the firm will be able to get any deals done over the medium term. With TD’s merger falling through, it’ll have plenty of liquidity (perhaps too much) to put to work. Too much cash with too few places to deploy is arguably a good problem to have in a rising-rate environment, in my opinion.

Barclays recently noted that TD may go years (three to five) without U.S. bank deals. Has TD’s credibility as a potential acquirer taken a hit? Sure, but I think a three- to five-year deal drought is overblown.

As analysts turn their backs on Canadian bank stocks, I’d look to give them a closer look. TD’s yield is at 4.67%. That’s competitive with GICs, but with the added benefit of potential capital appreciation over time.

Further, there’s always a chance TD could shock us with a big deal down south within the next two years.

North West Company

North West Company (TSX:NWC) is a lesser-known regional retailer that boasts a juicy 3.99% dividend yield. The $1.82 billion market cap makes NWC stock a compelling mid-cap for those seeking value and passive income. Though shares have spent many years consolidating in the $30 range, I think it could be on the cusp of a sizeable upside move (perhaps a breakout?), even as the recession nears.

North West is a well-managed retail company that’s done relatively well amid inflation. If you think macro pressures will only mount from here, NWC stock may be the value play to consider while it’s going for just 15.24 times trailing price to earnings.

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.

The Motley Fool recommends North West. The Motley Fool has a disclosure policyFool contributor Joey Frenette has no position in any stocks mentioned.  

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