Creating an alternate stream of passive income is always a great strategy, as it provides individuals and households with the financial flexibility to navigate an uncertain macro environment. However, it’s not easy to start a passive income stream, as you need to identify the appropriate asset class that can deliver inflation-beating returns over time.
In the last two years, rising interest rates have made fixed-income instruments such as guaranteed income certificates (GICs) an attractive option. Several banks and financial institutions offer a yield of 5%, which means you can earn $2,000 in annual passive income with a $40,000 investment in GICs. However, there are other asset classes you can gain exposure to and build a recurring income stream from.
In the last several decades, equities have comfortably outpaced inflation, creating game-changing wealth for investors in the process. You should identify a portfolio of dividend stocks with growing payouts, attractive yields, and widening cash flows. In addition to a steady dividend payout, investors can benefit from capital gains as well. Here are two TSX dividend stocks you can buy right now.
Enbridge stock
A TSX giant, Enbridge (TSX:ENB) is among the most popular dividend stocks in Canada. Currently, Enbridge stock trades 26% from all-time highs, increasing its forward yield to 7.5%. Enbridge is part of a cyclical sector but has raised its dividends by 10% annually in the last 28 years, showcasing the resiliency of its cash flows. A majority of Enbridge’s cash flows are tied to long-term contracts, which are indexed to inflation. This suggests Enbridge is relatively immune to fluctuations in commodity prices.
Enbridge has successfully diversified its revenue base and is investing heavily in renewable energy, a long-term megatrend. Moreover, a payout ratio of less than 80% provides Enbridge with enough room to reinvest in capital expenditures, strengthen its balance sheet, and target accretive acquisitions, all of which the energy infrastructure giant has done in 2023.
Priced at 16 times forward earnings, ENB stock trades at a discount of 12% to consensus price target estimates. After adjusting for dividends, total returns may be closer to 20% in the next 12 months.
Brookfield Renewable Partners stock
Down roughly 50% from record prices, Brookfield Renewable Partners (TSX:BEP.UN) offers a tasty yield of 6.1%. Despite a challenging macro backdrop, Brookfield reported record funds from operations (FFO) of US$1.1 billion, up 7% from the year-ago period.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Enbridge | $48.55 | 304 | $0.915 | $278 | Quarterly |
| Brookfield Renewable Partners | $30.83 | 478 | $0.4825 | $230 | Quarterly |
The growth story for Brookfield is far from over, given the worldwide shift towards clean energy solutions. For instance, Brookfield has a growing development project backlog, which includes 24 gigawatts of advanced-stage projects. Once operational, these projects will add US$300 million in FFOs each year.
Brookfield Renewable continues to expand its base of cash-generating assets, which should result in higher cash flows and dividends. In fact, the clean energy giant expects to deliver double-digit FFO growth in the next five years.
The Foolish takeaway
Investing $29,500 equally in the two TSX stocks will help you earn $2,000 in annual dividends. If the payouts are raised by 7% annually, your dividend income will double in the next 10 years.
