The stock market offers Canadians one of the quickest ways to set up a dependable stream of passive income. All it takes is investing in a dividend stock, which, fortunately for Canadian investors, the TSX has no shortage of.
When it comes to investing in dividend stocks, there are two key metrics to keep in mind. The first is the dividend yield, which is a calculation of the annual dividend divided by the stock’s current share price. The second metric to dig into would be the company’s payout and/or growth streak. It’s important to understand how long a company has been paying a dividend. In addition, you’ll also want to know if it’s been increasing the dividend in recent years.
Choosing your savings account
Once you’ve decided to invest in a dividend stock, the next important decision becomes the type of savings account in which you will hold this investment. Canadians have a few options, but I’d strongly recommend taking a close look at the Tax-Free Savings Account (TFSA).
The beauty of a TFSA is that Canadians have the luxury of making withdrawals at any point in time completely tax-free. When your investment pays its dividend to you, you’re able to withdraw that cash as soon as it hits your account.
The TFSA does have annual contribution limits, which Canadian investors need to keep in mind. In 2023, that limit is $6,500.
Don’t worry if you’re behind on your TFSA savings, though. Unused contributions can be carried over from year to year. For anyone who was 18 years or older in 2009, when the TFSA was introduced to Canadians, the total contribution limit today would be $88,000 if they’ve never contributed.
With that in mind, here are two perfect dividend-paying companies to help get your passive-income portfolio started.
Dividend stock #1: Bank of Nova Scotia
The major Canadian banks would make an excellent basket of dividend stocks. From high yields to long payout streaks, passive-income investors would be wise to own at least one of the Big Five.
Bank of Nova Scotia (TSX:BNS) is currently the highest-yielding Canadian bank. It’s also one of only two Canadian banks that is yielding above 6% today.
In addition to a nearly 7% yield, Bank of Nova Scotia has been paying a dividend to its shareholders for close to 200 consecutive years.
There aren’t many dividend stocks on the TSX that can provide the combination of yield and dependability that Bank of Nova Scotia can.
Dividend stock #2: Brookfield Infrastructure Partners
Speaking of dependability, utility stocks are not second to many in that category. The payout streaks are certainly adequate. It’s the defensiveness that utility stocks can provide that makes them an interesting buy for passive-income investors.
There’s not a whole lot to get excited about with the global utility provider Brookfield Infrastructure Partners (TSX:BIP.UN). However, inventors know what they’re going to get from utility stock like this one. Regardless of the economy’s condition, volatility levels typically remain low.
At today’s stock price, Brookfield Infrastructure Partners’s dividend is yielding just over 5%.
If you’re looking to keep risk at a minimum in your portfolio, I’d strongly suggest owning a utility stock or two.
