How to Build a Passive-Income Portfolio With Less Than $20K in Savings

Quality dividend stocks can help you earn a recurring stream of passive income with a small amount of capital. While dividend payouts are not guaranteed, there are plenty of blue-chip TSX stocks that have maintained and even increased these payments across market cycles.

Here’s how Canadians can build a passive-income portfolio with less than $20,000 in savings by investing in these three top TSX stocks.

Is Royal Bank of Canada stock a good buy?

Bank stocks are cyclical and have underperformed the broader markets in the last 18 months. Investors are currently worried about rising interest rates and a sluggish macro economy, which has resulted in a tepid lending environment.

Shares of Royal Bank of Canada (TSX:RY) are trading 20% below all-time highs, increasing its forward yield to a tasty 4.6%. The Canadian banking sector is heavily regulated, and a conservative approach equips RBC and its peers with enough liquidity to tide over economic downturns.

While several banks in the U.S. were forced to cut dividends during the financial crisis in 2008, RBC could maintain its payout, which showcases the resiliency of the company’s cash flows. In the last 22 years, RBC has increased dividends by 9.6% annually.

Priced at 10.6 times forward earnings, RBC stock is quite cheap and trades at a discount of 15% to consensus price target estimates.

Is Brookfield Infrastructure stock undervalued?

The U.S. government is betting big on infrastructure, making companies such as Brookfield Infrastructure Partners (TSX:BIP.UN), a top investment option right now. BIP owns and operates a diversified portfolio of cash-generating assets that include data infrastructure, toll roads, railroads, and midstream.

Around 90% of its funds from operations (FFO), which originates from utilities, transport, and data centres, are regulated or contracted, providing it with a predictable stream of cash flow. The company also sells legacy assets every few years and reinvests these proceeds in high-growth verticals, driving future cash flows higher.

In the last 10 years, BIP has increased dividends by 9% annually, as FFO has grown by 11% each year. It expects to grow dividends between 5% and 9% annually in the future. Down 29% from all-time highs, BIP stock currently offers you a dividend yield of 5.5%. It also trades at a discount of 50% to consensus price target estimates.

Is Enbridge stock a buy, sell, or hold?

The final dividend stock on my list is Enbridge (TSX:ENB), which is among the largest companies in Canada. A midstream heavyweight, Enbridge stock currently offers you a dividend yield of 7.8%.

ENB stock is down 24% from record highs and has trailed the markets this year after the company announced its intention to acquire three natural gas companies from Dominion Energy for US$14 billion.

Enbridge has increased its dividends by 10% annually in the last 28 years. It expects the above-mentioned acquisition to be accretive to cash flows in the first year, which should drive dividend payouts higher.

The Foolish takeaway

An investment of $6,500 in each of these three TSX stocks will help you earn close to $1,150 in annual dividends. If these payouts increase by 7% each year, your dividends will double in the next decade, raising your effective yield to more than 11% in the process.