Developing a passive income stream is not exclusive to retirees or Canadians nearing their retirement years. It’s a practical financial step that gives people more headroom when managing routine expenses. For retirees, a sizable passive income stream can be considered another pension.
Dividend stocks are one of the best sources of passive income stream due to their predictability and consistency (assuming you choose the right stocks). Although there are thousands of dividend payers in Canada, a few stand out from the rest.
An energy company
Several energy stocks in Canada pay generous dividends, including the mid-cap, midstream company Keyera (TSX: KEY). Keyera is primarily a pipeline company, which makes it safer than energy companies whose finances are more vulnerable to energy price fluctuations. It controls about 4,400 kilometers of pipelines, but that’s just one segment of its energy business.
Keyera also owns significant storage and processing infrastructure, including 12 active gas plants. It also produces propane, butane, and iso-octane in addition to natural gas. As a stock, Keyera is quite stable and, currently, modestly overvalued. But the 5.8% yield is quite decent.
The company hasn’t grown its payouts in the last three years, but it’s a past practice that it may revert to in the future. It has recently switched from monthly payouts to quarterly payouts.
A mortgage company
Even though the mortgage market in Canada has been dominated by the big six banks, several smaller players are thriving in customer pools neglected by the banks. First National Financial (TSX: FN) is one of the biggest fishes in those pools. It’s among the largest non-bank mortgage lenders in Canada, and this leadership role makes it a relatively safe pick.
The company offers mortgages and loans to both residential and commercial sectors, and this diversification partially shields it from adverse market events like housing crashes. It has offered decent capital appreciation in the past, and in the last 10 years, the stock has risen by about 120%.
It’s a generous dividend stock, but the current discount of 23% from its post-pandemic peak has pushed its yield up to an even more attractive 6%.
A bank
Bank stocks in Canada are coveted for their safe and generous dividends, and if you are looking for the most powerful yield, Bank of Nova Scotia (TSX: BNS) should be your pick. It’s offering a mouthwatering 6.4% yield, which is the result of a hefty 29% discount. A secondary benefit of this discount is the bank’s attractive valuation.
Like others in the big six, the Bank of Nova Scotia is an aristocrat. Yearly increases in the bank’s payouts, especially if they are higher than the inflation rate, make it ideal for starting an income stream that can keep up with the higher cost of living.
While capital appreciation hasn’t been the bank’s forte in a while, if you are holding it for a long period (over a decade), your chances of growing your capital in this stock might be higher than your chances of incurring a capital loss.
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Foolish takeaway
The three stocks, with their strong yields and healthy dividend histories, can help you develop a solid passive income. All three have proven their mettle during COVID and other weak markets, so the dividends are not just generous but also resilient.
