If you want to earn safe dividend income from stocks, you need to be diversified, and you need to own high-quality companies. Owning a portfolio of stocks that is diversified by sector and asset class can help spread out your risk. Likewise, owning a diverse portfolio can protect you if one of your stocks underperforms.
Always focus on the quality of a stock over the size of its dividend yield. A high-quality stock is one with a strong business, a great balance sheet, and the history and capacity to consistently grow earnings and dividends. If it can sustainably grow earnings, chances are high that your dividend income will also grow.
If you are starting out with only $10,000, here’s a mini-four stock portfolio for safe and solid dividend income.
Hard to go wrong with this dividend staple
Fortis (TSX:FTS) has to be at the top of the list if you want safe dividends. Fortis is one of Canada’s largest utility businesses. It has operations across North America. Gas and electricity are services that are essential to consumers and businesses.
Given that 99% of its business is regulated, Fortis earns a baseline of earnings that are very reliable. Over the past 10 years, it has grown earnings per share by a 5.6% compound annual growth rate (CAGR). It has grown its dividend per share by a 6.3% CAGR.
Today, Fortis yields 4%. The company sees 4-6% annual dividend growth, given its large capital investment program. For a solid, steady-as-it-goes dividend stock, Fortis is a great stock to hold.
A telecom for decades of dividend growth
TELUS (TSX:T) is another household name you can rely on for dividends. Certainly, 2023 hasn’t been the greatest year. Its stock is down 3% in 2023 and down 11% over the past year. However, that may be an opportunity to pick this stock up with an outsized 5.7% dividend yield.
Many are worried TELUS may lose its edge given recent mergers amongst competitors. Yet TELUS has established best-in-class, industry-leading infrastructure, a loyal customer base, and a diversified business model.
The company has grown its dividend by over 6% per year for a decade. For another large Canadian stalwart, TELUS is a safe bet.
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Essential assets around the world
Brookfield Infrastructure Partners (TSX:BIP.UN) is a strong stock for dividends and growth. While the overall economy has weakened in the past several months, Brookfield has been on a buying spree. This year, it announced agreements to buy several data centres as well as a mega container/port business.
Brookfield’s broad portfolio of essential assets acts as a safety net and a growth mechanism. Its smart investment strategy has helped fuel +8% annual average dividend growth for a decade. This stock yields 4.4% today.
A top railroad for dividends
Canadian National Railway (TSX:CNR) has a +100-year history operating and +25-year history paying and growing dividends. That’s longevity that any conservative investor can trust in. It doesn’t pay a large dividend yield at 2% this year. Yet it has compounded that dividend by a low-teens percentage for close to three decades.
With the economy slowing, CN is seeing transport volumes decline. That is slowing earnings growth. Yet over long periods of time, this company has compounded significant shareholder value.
The recent pullback could make a great buying opportunity. It helps that CN has a great balance sheet, and its payout ratio is extremely low. That means chances are high for plenty more income in the years ahead.
