If you want to earn decades of passive income, you are smart to look for stocks that have paid years of consistent dividends. It is even better to look for stocks that have steadily grown their dividends.
Why? A stock can only increase its annual dividend regularly if it is also growing its earnings and cash flows per share. It is better to own a stock that will appreciate your capital and pay a smaller dividend than one that pays a large dividend and destroys your capital.
If you want some dividends with sustainable passive income (and hopefully decent capital growth), here are three stocks to consider buying.
Passive income that could grow for a lifetime
Canadian National Railway (TSX: CNR) may not pay a large dividend (1.9% yield), but it gets big points for dividend growth. It started paying a dividend in 1996. Its quarterly dividend today is up 43 times since then. Over the past 10 years, its annual dividend has increased by a 13% compounded annual growth rate.
There are reasons to believe this should continue. Canadian National has one of the best balance sheets in the industry. Not only can it continue to keep investing in its operations, but it should be able to buy back stock and keep growing its dividend.
Canadian National has an enviable network across North America. This provides its perpetual pricing power and a strong competitive edge. It has a new chief executive officer who is revamping operations and maximizing efficiencies. It’s a great bet for long-term dividend income.
A top real estate stock for long-term passive income
Granite Real Estate Investment Trust (TSX: GRT.UN) is another long-term passive-income stock. Granite doesn’t quite have the track record of dividend growth as Canadian National, but 13 consecutive years of annual dividend increases isn’t bad.
Granite’s portfolio of logistics, distribution, and manufacturing properties form the backbone of commerce in North America and Europe. Granite benefits from long-term trends like e-commerce and near-shoring. It has long-term lease (+7 years), high-quality tenants (like well-known e-commerce giants), and strong occupancy (+95%).
It also has a top management team that has prudently managed its portfolio and balance sheet. Granite has ample liquidity and a low dividend payout ratio. It should keep growing its dividend steadily forward. This passive-income stock yields 4.4% today.
A utility with a 50-year dividend-growth record
If you want longevity, it is hard to go wrong with Fortis (TSX: FTS). It has 50 years of consecutive annual dividend growth. It operates a portfolio of 10 energy transmission and distribution utilities across North America.
99% of its operations are regulated, so it tends to earn a predictable earnings stream. As it invests in infrastructure, it earns a regulated rate of return that locks in its growth profile.
Right now, it has a plan to grow its earnings by about 6% a year for the coming five years. It hopes to increase its dividend annually by 4-6%. It’s a low-growth, low-risk stock. However, it’s a good bet for steady passive income. It yields 4.5% today.
