In today’s world, having a single source of income is not enough. Building a reserve that can support your active income during difficult times is important. In the long term, this reserve should be able to replace your active income. For such financial freedom, you must invest in dividend stocks that can give you inflation-adjusted passive income for decades.
A top dividend stock for your passive-income portfolio
To build a passive-income portfolio, identify Dividend Aristocrats with a strong history of giving dividends without dividend cuts. Telus (TSX:T) is one of the top dividend stocks with a high yield and dividend-growth rate. The telco has been growing dividends for the last 19 years. However, its dividend-growth rate fluctuated as the telco spent significant capital on technology upgrades to stay competitive. It has completed the 5G infrastructure rollout and could reap the benefits of the new technology.
The 5G era will see several income avenues in cloud computing and networking. It will create the ecosystem for the proliferation of Internet of Things devices and artificial intelligence at the edge. These new avenues of stable income could help Telus continue growing its dividends for another 10 years.
Telus stock is currently trading at its pre-pandemic levels of around $24. It hovers in the $22-$32 range. The stock price could surge in the next 10 years as 5G opens new opportunities. Now is a good time to buy the stock and lock in a 6% yield. It has already increased its 2024 dividend by 3% for the first quarter and could grow it further in the third quarter.
Assuming it grows its 2024 annual dividend per share by 6%, it would be $1.515. And if it maintains this growth rate, the annual dividend per share could increase to $2.559 in the next 10 years. Note that the stock that pays dividends is Telus. The company has spun off its digital solutions business, which trades as Telus International under the ticker TXIT. That is a growth stock with volatile stock prices and no passive income. So, be careful when buying Telus stock.
How to earn $2,047 in passive income from 800 shares of Telus
If you have $20,000 accumulated from your growth stocks, you can book profits and lock them in Telus stock, which is less volatile. A $20,000 investment could buy you 800 shares of Telus and fetch you $1,212 in passive income by the end of this year.
| Year | Telus Dividend per share (6% CAGR) | Dividend income from 800 shares |
| 2024 | $1.5152 | $1,212.13 |
| 2025 | $1.6061 | $1,284.86 |
| 2026 | $1.7024 | $1,361.95 |
| 2027 | $1.8046 | $1,443.67 |
| 2028 | $1.9129 | $1,530.29 |
| 2029 | $2.0276 | $1,622.10 |
| 2030 | $2.1493 | $1,719.43 |
| 2031 | $2.2782 | $1,822.60 |
| 2032 | $2.4149 | $1,931.95 |
| 2033 | $2.5598 | $2,047.87 |
| Total | $15,976.85 |
If the company continues to grow dividends at a 6% compound annual growth rate (CAGR), these 800 shares can fetch you $2,047 in passive income by 2033. Your one-time investment of $20,000 today can earn you an accumulated passive income of around $16,000 in 10 years while keeping your invested amount safe, with a 15% upside or downside for stock price volatility.
Investor takeaway
Investing $20,000 in one go might not be possible through the Tax-Free Savings Account (TFSA) if you don’t have contribution room carried forward from past years. But if you have some growth stocks like Shopify or opportunistic stocks like Suncor Energy in your TFSA, you could sell them while they are still trading at a high price and book profits. Suncor Energy has already reached its cyclical peak and has limited upside. The stock could fall as oil prices ease and the energy sector accelerates the transition to greener energy.
Now is a good time to rebalance your portfolio by selling growth stocks at their 52-week high and buying dividend stocks near their lows. Timely rebalancing can help you get the benefit of both growth and dividends.
