Dividend investing is a low-cost strategy to initiate a steady stream of recurring passive income. Investors need to consistently identify companies that generate stable cash flows across market cycles, allowing them to maintain and even increase dividends over time.
You can earn over $1,000 a year in annual dividends with less than $20,000 in savings by investing in blue-chip stocks that offer a yield of more than 5%. Moreover, if the companies raise dividends by 7% annually, your dividend payout will double in 10 years. Here are two high-dividend TSX stocks you can consider buying right now.
Brookfield Renewable Partners stock
A clean energy giant, Brookfield Renewable Partners (TSX:BEP.UN) offers you a tasty dividend yield of 5.4%. Elevated interest rates have dragged shares of renewable energy companies lower in the past two years as it has become quite expensive to finance new projects via debt.
BEP stock trades 45% below all-time highs. But the pullback offers you the opportunity to buy a quality company at a massive discount.
Despite a challenging macro backdrop, Brookfield Renewable increased funds from operations or FFO by 7% in the third quarter (Q3), showcasing the resiliency of its cash flows. It also completed multiple deals in recent months, allowing it to enjoy steady bottom-line growth in the next 12 months.
Brookfield’s cash flows are stable and tied to long-term contracts indexed to inflation. This resiliency has enabled the company to raise dividends by at least 5% for 12 consecutive years. A combination of revenue and earnings growth has meant BEP stock has returned 330% in dividend-adjusted gains to shareholders in the past 10 years, outpacing the broader markets by a wide margin.
Brookfield Renewable aims to grow FFO per share by 10% annually through 2028 on the back of inflation escalations, margin enhancements, a robust development pipeline, and accretive acquisitions.
These drivers should allow the TSX giant to raise dividends between 5% and 9% annually, making it attractive to income investors. Moreover, BEP stock also trades at a discount of 50% to consensus price target estimates.
Bank of Nova Scotia stock
Another blue-chip stock that offers a high dividend yield is Bank of Nova Scotia (TSX:BNS). Down 36% from all-time highs, it pays shareholders an annual dividend of $4.24 per share, translating to a yield of 7.1%.
Scotiabank reported a net income of $7.52 billion or $5.78 per share in fiscal 2023 (ended in October) compared to $10.17 billion or $8.02 per share in the year-ago period. The bottom line erosion for BNS and its banking peers in the last 12 months can be attributed to higher provision for credit losses or PCLs.
As interest rates rise, BNS has to allocate a higher portion of its profits towards PCLs to account for the risk of delinquencies.
But the company has strong capital and liquidity ratios, an improving loan-to-deposit ratio, and a higher allowance for credit losses, making it among the top investment choices for investors today. Priced at nine times forward earnings, BNS stock is quite cheap.
The Foolish takeaway
For you to earn close to $1,000 in dividends next year, you need to invest a total of $16,000 equally distributed in these two TSX stocks.
|NUMBER OF SHARES
|Brookfield Renewable Partners
|Bank of Nova Scotia