Canadian Dividend Machines: Stocks That Generate Passive Income

Here are a couple of passive income ideas to buy on dips for your personal dividend machine!

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Don’t you wish you had a dividend machine that could roll out income for you without you having to lift a finger? It’s surely a nice thought to earn Canadian dividend income that’s taxed at lower rates than interest income and your job’s income. This means more money in your pocket! Well, it doesn’t have to be wishful thinking.

To generate passive income, the businesses must make reliable earnings or cash flows that support safe dividends. Additionally, they should be stocks with solid businesses that you have confidence in adding positions to during fearful market corrections that should be viewed as long-term investing opportunities.

Here are a couple of blue chip stocks that pay out safe dividends and have dipped recently.

Enbridge stock

Enbridge (TSX:ENB) is a large energy infrastructure stock that generates substantial cash flow and has a track record of paying out dividends for more than 70 years. As well, it has increased its dividend for about 29 consecutive years.

Notably, as the company has grown very big to an enterprise value of about $200 billion while higher interest rates have prevailed, its dividend growth rate has slowed in recent years to about 3%. That said, its dividend yield is attractive to investors who want income.

Enbridge’s cash flow is defensive. It is highly contracted and largely comes from investment-grade customers. Furthermore, about 80% has inflation protection. Management also noted that only about 5% of the company’s debt portfolio is exposed to floating rates, which suggests that its interest expense is highly predictable.

In the first quarter, the energy stock reported distributable cash flow growth of about 4% per share, which is what pays its dividend. Through 2026, Enbridge plans for diversified capital investments of $6 to 7 billion per year. So, investors can continue to expect safe dividend increases of about 3% per year over the next few years.

The dividend stock just dipped from the $51 level. At under $49 per share, it’s not a bad time for income investors to nibble for a safe dividend yield of almost 7.5%! At this price, analysts think the stock trades at a discount of over 10%.

Another easy pick for passive income is Fortis (TSX:FTS).

Fortis stock

Fortis is a prime example of a passive income stock. It has increased its dividend for 50 consecutive years – a true dividend aristocrat in Canada. With the regulated utility stock, investors don’t have to guess if the stock will increase its dividend. They know when it will increase it – sometime in September based on its usual dividend hike schedule. Its business earnings are so predictable that management has already forecast dividend increases of 4 to 6% per year through 2028.

The stock dipped from the $56 level fairly recently. At $53.53 per share at writing, analysts think it trades at a slight discount. And from its long-term normal price-to-earnings ratio, it trades at a discount of about 10%. This price provides a dividend yield of 4.4% for passive income you can rely on to rise coming September.

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 Kay Ng has positions in Fortis. The Motley Fool recommends Enbridge and Fortis. The Motley Fool has a disclosure policy.

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