Are you looking for assets to buy for safe passive income?
Some would say that if safety is what you’re after, Guaranteed Investment Certificates (GICs) are where you want to be now, as they yield 5% and are insured by the government. Those would be the pinnacle of “safe passive income” in Canada today.
As for stocks, the passive income is certainly obtainable, although with a bit more risk than is found in GICs. With a typical TSX Index fund, you can get a 3% yield in a package that diversifies away much of the risk in individual stocks. For me, there are some individual stocks with high yields that are worth the investment. In this article, I will explore a few of them.
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Brookfield and Brookfield Asset Management
Brookfield (TSX:BN) and Brookfield Asset Management (TSX:BAM) are two related Canadian financial services companies. I own Brookfield shares personally, and I owned BAM shares until last week. The dividend play here is Brookfield Asset Management, an asset management stock that has a 3.75% dividend yield — considerably higher than the TSX Index. Brookfield has a much lower yield — 0.8% — though it is cheaper than BAM going by some metrics. I mention Brookfield because it is the parent of Brookfield Asset Management and because it shows that I am putting my money where my mouth is — although I sold my BAM shares, I still have indirect exposure via BN, which owns 75% of BAM.
If you’re content to just collect the dividend, BAM is a good stock to own today. It is a bit pricey compared to similar stocks, so it may not deliver explosive capital appreciation, but the dividend is well covered enough to be paid for the foreseeable future. If you don’t care about the dividend as much, you could buy Brookfield stock. That one is riskier (it has a lot of debt), but it is also cheaper than BAM going by net assets. It’s for this reason that I sold my BAM shares while keeping BN — though I should stress that I think both stocks are pretty good.
TD Bank
Toronto-Dominion Bank (TSX:TD) is a Canadian bank and the longest-standing stock in my portfolio. I started buying it in 2018, and despite selling portions of it here and there, I have mostly stuck with the position. Just recently, I added when the price went below $78.
TD Bank stock has a 5% yield. That means that if you invest $100,000 into it, you’ll get $5,000 in annual passive income, assuming that the dividend doesn’t change. Historically, the dividend has risen. Over a long enough period of time, I’d imagine that the dividend will continue rising, although I’m not sure that I see a big dividend hike coming this year. TD’s earnings declined in recent quarters, largely due to the lingering effects of the termination of the First Horizon deal.
On a long-term basis, TD continues to do well. It has a 22% profit margin and a 9.6% return on equity. It has grown its revenue by 6.21% per year over the last five years. On the whole, it’s a company I’m comfortable holding for the foreseeable future.
