While tech stocks are rebounding in 2023, it has been a different story for many dividend stocks that earn passive income. While every investor likes passive income, it may not be worth it if your capital investment is destroyed at the same time. That is why it is crucial to look for dividend quality over dividend quantity.
Stocks with excessively high dividend yields can be a major warning sign that a stock is facing challenges. Consequently, it is important to look for stocks that can simultaneously grow their businesses and their dividends. If you have $20,000 to invest, here are three high-quality TSX stocks that should be safe bets for long-term passive income.
Fortis: A long-term dividend legend
Fortis (TSX:FTS) is a stalwart for safe passive income. The company has a near 50-year history of consecutively growing its dividend annually. 99% of Fortis operations are regulated, which means it has a baseline of revenues that are assured.
Likewise, Fortis operates transmission and distribution assets for electricity and gas utilities. Given how vital these services are, demand is very stable and predictable. The company has a capital plan that should help earnings grow by around 5% annually for the next five years. Its dividend is expected to grow by a similar rate.
Fortis stock yields just under 4% today. Right now, its earnings payout ratio sits at 82%, which means it still retains 18% of its earnings for reinvestment in the business. Put $6,666 into Fortis stock today and you would earn $65.54 of passive income quarterly.
Granite REIT: A top real estate stock for passive income
Granite Real Estate Investment Trust (TSX:GRT.UN) is one of the safest real estate stocks you can find today. It operates a portfolio of 128 high-quality industrial properties across Canada, the United States, and Europe. Industrial real estate has been one of the most consistent and resilient asset class since the pandemic.
Granite has a weighted average lease term of 6.7 years. This means that it has long-term visibility to the rents and cash flows that it will earn. Granite is very conservatively managed. It has one of the lowest debt ratios amongst its REIT peers. Likewise, Granite has been enjoying high-single-digit cash flow-per-unit growth for several years.
Granite stock yields 4% right now. Its payout ratio is below 70%. Granite has consistently grown its distribution for 12 consecutive years, and it has ample room to keep growing that income. A $6,666 investment in Granite stock would earn $22.14 monthly.
Canadian National Railway: A long-term winner for passive income
Canadian National Railway (TSX:CNR) has been operating for over 100 years. The railroad operates essential transportation lines across Canada and the United States. In many cases, it has a monopoly on several crucial stops in its network.
Railroads are critical infrastructure for the North American economy. As a result, they have persistently strong pricing power. While transportation stocks may take a hit from an impending recession, they have proven to be exceptional stocks for growth and income over long periods.
CN only pays a 2% dividend today. However, it has increased its dividend by a 15% compounded annual growth rate for more than 20 years. Its earnings-payout ratio is only 40%.
It has an industry-leading balance sheet, so there is considerable room for its dividend to keep growing. A $6,6666 investment would earn $33.97 of quarterly passive income.
The Foolish takeaway
If you want dividend surety and sustainability, look for extremely high-quality businesses. Dividends tend to follow the success of a company. Companies that steadily grow their earnings and cash flows are a great bet for a growing, reliable streams of passive income.
|COMPANY||RECENT PRICE||NUMBER OF SHARES||DIVIDEND||TOTAL PAYOUT||FREQUENCY|
|Canadian National Railway||$153.06||43||$0.79||$33.97||Quarterly|