Best Dividend Stock to Buy for Passive Income Investors: Royal Bank Stock vs. Power Stock

These two dividend stocks have long produced healthy passive income, but there is a lot to consider before buying.

| More on:
Question marks in a pile

Image source: Getty Images

Today we’re going to look at winners. Popular dividend stocks that Canadians have long enjoyed investing in. Not companies that could come back or should come back, but those that have already proven worthy this year.

Yet if you’re looking for just one stock, then it’s important to really consider your own risk tolerance, as well as the companies you’re buying – not just for past performance, but future growth opportunities as well. Which is why today we’re going to dig into two healthy passive income stocks. While Royal Bank of Canada (TSX:RY) and Power Corporation of Canada (TSX:POW) are both strong, which is the better buy?

The dividend

Let’s deal with the reason these stocks are popular to begin with, and that comes down to the dividend. Both RBC stock and Power stock offer dividends, with RBC at 4.11% and Power at 5.42%. Of the pair, RBC stock traditionally has offered a more stable and high dividend yield due to its position as the largest bank in Canada by market cap, with a strong financial standing.

Power stock, however, might offer a higher yield based more on financial performance. When it comes to historical growth, RBC stock has a long history of paying dividends, as well as increasing them. Power stock on the other hand is more varied when it comes to dividend growth, depending more on performance.

The business

As for the sustainability and diversification of these businesses, this could offer clues as to which is the better long-term buy. RBC stock is in the stable Canadian banking sector, with lower fluctuations compared to other industries. Though expect downturns as we’ve seen, as banks tend to fall when inflation and interest rates rise.

Power stock, however, is a diversified holding company with interests in various sectors, and that includes financial services, as well as asset management and energy. This diversification can be beneficial if management is on top of it, but can also expose the company to risks from different industry exposure.

Future growth

Then there’s the future of these two companies. RBC stock continues to be a major player in the banking industry, and indeed made some large and interesting moves recently. The bank will be acquiring HSBC Canada, looking to expand its exposure to high-income newcomers to Canada. This will provide even more stable and long-term growth prospects.

Power stock mainly relies on its performance from subsidiaries and investments. Yet again, that diversification can certainly bring in high recurring revenue, which includes from life insurance and wealth management. In fact, this has proven protective during this downturn. So while it may provide a bit more risk than RBC stock, it could protect you during a downturn.

Bottom line

If you’re looking for stable long-term growth and income, then RBC stock is likely your best choice. The company is large and growing with this investment into HSBC Canada. However, shares haven’t performed well during this downturn, even though it has done the best of the Canadian banks.

Power stock, however, could provide further protection during this downturn, with shares doing quite well. And you also are offered a higher dividend yield. So if you’re thinking medium term, this could be a better choice for you. As always, consider your own risk tolerance and portfolio strategy before buying either stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Royal Bank of Canada. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

hand using ATM
Dividend Stocks

Should Bank of Nova Scotia or Enbridge Stock Be on Your Buy List Today?

These TSX dividend stocks trade way below their 2022 highs. Is one now undervalued?

Read more »

A meter measures energy use.
Dividend Stocks

Here’s Why Canadian Utilities Is a No-Brainer Dividend Stock

Canadian Utilities stock is down 23% in the last year. Even if it wasn’t down, it is a dividend stock…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

Got $5,000? Buy and Hold These 3 Value Stocks for Years

These essential and valuable value stocks are the perfect addition to any portfolio, especially if you have $5,000 you want…

Read more »

Growing plant shoots on coins
Dividend Stocks

3 Magnificent Ultra-High-Yield Dividend Stocks That Are Screaming Buys in April

High yield stocks like BCE (TSX:BCE) can add a lot of income to your portfolio.

Read more »

grow money, wealth build
Dividend Stocks

1 Growth Stock Down 24% to Buy Right Now

With this impressive growth stock trading more than 20% off its high, it's the perfect stock to buy right now…

Read more »

Dividend Stocks

What Should Investors Watch in Aecon Stock’s Earnings Report?

Aecon (TSX:ARE) stock has earnings coming out this week, and after disappointing fourth-quarter results, this is what investors should watch.

Read more »

Freight Train
Dividend Stocks

CNR Stock: Can the Top Stock Keep it Up?

CNR (TSX:CNR) stock has had a pretty crazy last few years, but after a strong fourth quarter, can the top…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Stocks Ready for Dividend Hikes in 2024

These top TSX dividend stocks should boost their distributions this year.

Read more »