Writers, musicians, movie makers, and scientists live off on royalties. Their one-time effort pays off for generations. Can you earn a royalty despite having any of the above talents? The investing world has many options if you put in effort in your early years and build a robust portfolio of dividend and growth stocks. To create a dividend royalty, you need to study the stocks you want to invest in and apply some strategies that work best for you.
How to build a dividend royalty for decades of passive income
You can adopt several investing strategies to build a robust, well-diversified portfolio that pays you royalties for decades. Regular passive income can come from dividend stocks, dividend exchange-traded funds (ETFs), and government and private pensions.
A registered savings plan allows you to grow your investment tax-free, which means
- You can book profit from growth stocks and invest in dividend stocks tax-free;
- You can take the dividend payout and invest that money in another dividend or growth stock tax-free; and
- You can also invest in a dividend-reinvestment plan (DRIP) and compound your passive income tax-free.
These tax savings can help you generate significant passive income in the long term.
Two fabulous stocks to buy now for decades of passive income
The current TSX market is ripe to invest in dividend stocks as they trade near their lows. Once the economic recovery begins, you might lose the opportunity to lock in a higher dividend yield.
Enbridge stock
Enbridge (TSX: ENB) is an evergreen stock that you can keep accumulating in your portfolio. Its stock price is range-bound, hovering between $45 and $55. You can plan your investments to buy this stock when it trades below $50. That way, you can lock in a 7% yield.
Yield = annual dividend per share as a percentage of stock price
The pipeline operator annually increases its dividend per share by 3%. For 2024, its dividend per share is $3.66. Next year, it could grow to $3.77. You can calculate the dividend royalty you want and accordingly buy Enbridge shares.
A $500 investment can buy you 10 shares of Enbridge, which can give you $36.6 in dividend income. You can use this dividend to buy some high-growth stocks like Hive Digital Technologies where active investing of buy at $4 and sell at $8 can help you double your dividend to $73.
If you make windfall gains in a growth stock, you can park your money in Enbridge and keep drawing dividends until a better growth opportunity comes. The pipeline company’s low-risk business model and range-bound stock price can help you earn at least a 7% annual return, higher than the 3% average inflation.
Telus stock
Telus (TSX: T) stock has hit bottom and is trading at its pandemic low of around $21. It’s not just Telus. All telecom stocks are in a bear momentum as the industry is going through consolidation and transition. The 5G infrastructure upgrade leveraged their balance sheet, and higher interest rates affected their free cash flow. All telecom stocks saw their dividend payout ratio increase because of high interest rates. This problem is temporary, as the telco will restructure its debt when interest rates fall. And the Bank of Canada has started this turnaround by cutting the rate by 25 basis points to 4.75% in June.
The new regulation requiring network access to competitors needs creative solutions to minimize the impact on its return on investment. Until this uncertainty fades, the stock could continue to trade low. However, Telus is unlikely to cut dividends. In the worst-case scenario, it might pause dividends. So far, the company is continuing its routine mid-year dividend hike of 3.5%.
Telus offers DRIP that can help you compound your returns automatically. You could consider investing a lump sum of $7,000-$10,000 in Telus to lock in a 7% yield and a 7% annual dividend growth, with the benefit of compounding.
Investor takeaway
A lump sum investment in Telus now and small regular investments in Enbridge can help you earn dividend royalties.
