Starting a passive-income stream is easy, especially if you choose low-maintenance, income-producing assets like dividend stocks. But even if the income remains stable over the years, it will shrink under inflation’s influence.
However, you can easily rectify this issue by focusing solely on Dividend Aristocrats. These dividend payers are likely to keep growing their dividends and, consequently, the size of your income stream regularly enough to outpace inflation.
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A bank stock
Canadian bank stocks are among some of the most investor-favourite Dividend Aristocrats for three reasons: dividend sustainability, good yield, and decent dividend growth. Bank of Nova Scotia (TSX: BNS) offers the supercharged version of one of these strengths: i.e., dividend yield.
It’s currently offering the highest yield in the Canadian banking sector at 6.88%, though this massive yield can be attributed to the slump this bank stock is experiencing right now.
The stock has already lost about a third of its 2022 peak value and is on the way to losing more. It’s a sector-wide problem, but unappealing quarterly results can compound this impact and push the stock further down. This would be good news for investors buying the bank for its dividends. The bank has grown its payouts by almost 22% in the last five years.
An insurance company
Sun Life Financial (TSX: SLF) is no longer just an insurance company; though individual and group protection still makes up about 59% of the business, it has also diversified into wealth and asset management. Currently, Sun Life Financial has about $1.37 trillion in assets under management and operates in 28 different markets, which should give you an idea of its reach.
The company has been growing its payouts for eight consecutive years, and between 2019 and 2023, the payouts were raised by about 50%. The dividends are financially stable, and the payout ratio has remained below 65% in the last decade. Another benefit of considering this Aristocrat is the capital-appreciation potential it offers, reflected by its 90% returns in the last decade.
An energy stock
Many energy stocks in Canada have a solid dividend history and offer dividends at a generous yield, but few energy companies come close to Enbridge’s (TSX: ENB) dividends. It’s a Dividend Aristocrat that complies with both Canadian and American requirements for being an aristocrat (five years and 25 years, respectively).
The company has raised its payouts, even through some of the toughest times for the energy industry in Canada, including the Great Recession and COVID.
Enbridge’s dividend growth has been quite exceptional till now, but it would be prudent not to rely upon the set precedent. The company is now focusing on making its dividends more financially stable and has set modest and realistic dividend-growth projections.
Despite that, the company’s current 7.6% yield, which is one of the highest among Dividend Aristocrats, makes it a compelling pick for creating an inflation-resistant dividend payment.
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Foolish takeaway
The three companies are more than just Dividend Aristocrats. They are also time-tested, blue-chip institutions with decades of operational history and a massive regional and international reach. The financials are also healthy enough to offer sustainable dividends and continue with modest dividend growth for years, even decades to come.
