Want Decades of Passive Income? 3 Stocks to Buy Now and Hold Forever

Investing in blue-chip TSX dividend stocks such as RBC and CNR can help you earn passive income for life.

| More on:
Various Canadian dollars in gray pants pocket

Image source: Getty Images

Investing in fundamentally strong dividend stocks is a proven strategy to build long-term wealth. This strategy allows you to generate a passive income stream at a low cost and benefit from long-term capital gains over time. However, it’s essential to identify a portfolio of dividend stocks that have stable and growing cash flows, a low payout ratio, and reasonable debt levels to ensure these payouts are maintained across market cycles. Here are three top dividend stocks to buy now and hold forever.

Brookfield Infrastructure Partners stock

Valued at $18.2 billion by market cap, Brookfield Infrastructure Partners (TSX:BIP.UN) offers shareholders a tasty dividend yield of 5.6%. The Canada-based heavyweight owns and operates a diversified portfolio of infrastructure businesses across verticals such as utilities, transportation, midstream, and data centres.

Moreover, the company generates over 90% of its earnings from long-term, fee-based contracts or rate-regulated structures, resulting in stable cash flow generation. Around 70% of its cash flows are sheltered from volume or price exposure, while over 80% is tied to inflation-linked contracts.

BIP aims to distribute 60% to 70% of its cash flows as dividends, which provides it with enough flexibility to target acquisitions or lower balance sheet debt.

Further, BIP expects to grow its funds from operations per share by more than 10%, from US$2.95 in 2023 to US$3.25 in 2024. Priced at 8.9 times forward funds from operations (FFO), BIP stock is quite cheap and trades at a discount of 31% to consensus price target estimates.

Royal Bank of Canada stock

Royal Bank of Canada (TSX:RY) is among the largest banks in Canada and offers shareholders a tasty yield of 3.8%. While RBC is part of a cyclical sector, it has raised its dividends by more than 7% annually in the last two decades, which is exceptional.

Despite a sluggish lending environment, RBC reported adjusted earnings per share (EPS) of $4.2 billion, or $2.92 per share, an increase of 9% year over year in the fiscal second quarter (Q2) of 2024 (ended in April). RBC attributed its strong performance to record earnings in the capital markets business and growth in wealth management, insurance, and personal & commercial banking.

Analysts expect RBC stock to end fiscal 2024 with earnings of $11.5 per share, translating to a forward earnings multiple of 13 times, which is not too high.

Canadian National Railway stock

The final blue-chip dividend stock on my list is Canadian National Railway (TSX:CNR), which offers you a yield of less than 2%. However, in the last 20 years, CNR stock has returned an emphatic 1,630% to shareholders after adjusting for dividends.

The railroad giant expects to deliver EPS growth of 10% in 2024 while allocating $3.5 billion toward its capital program, which should drive future cash flows higher. It also expects the return on invested capital to be between 15% and 17%.

Moreover, Canadian National Railway forecasts EPS to expand between 19% and 15% through 2026 due to growing volumes, improving operational efficiencies and higher pricing.

In the last 25 years, CNR has raised dividends by 16% annually, enhancing the effective yield in this period.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners and Canadian National Railway. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks

The TSX is lucrative to buy these magnificent dividend stocks in bulk and be proud of this decision 10 years…

Read more »

calculate and analyze stock
Dividend Stocks

4 Fabulous Dividend Stocks to Buy in July

Are you looking for long-term income? These four dividend stocks should not only provide you with value in July but…

Read more »

financial freedom sign
Dividend Stocks

5 Steps to Financial Freedom for Canadian Millennials

Follow these steps and nothing can stop Canadian millennials from achieving their early retirement dreams.

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

We’re Only Getting Older: A Top TSX Stock That Benefits From an Aging Population

For a bet on the aging population, consider this small-cap stock with growth potential.

Read more »

Growing plant shoots on coins
Dividend Stocks

Yield Today, Growth Tomorrow: 3 Stocks to Keep Building Your Wealth

For investors seeking yield today and growth tomorrow, these top Canadian dividend stocks are certainly worth considering right now.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 10.72% Dividend Stock Pays Cash Every Month

This dividend stock remains a consistent, defensive dividend producer that will give up over 10% in income each and every…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA Investors: 2 Standout Domestic Stocks With 7% Yields

These top dividend-growth stocks look oversold.

Read more »

Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Despite their recent declines, the long-term growth outlook of these two top dividend stocks remains strong, which could help their…

Read more »