Investing in high-quality dividend stocks offers investors an opportunity to generate relatively safe passive income. However, it’s important to recognize that all investments carry inherent risks, meaning no investment can generate risk-free passive income.
Nevertheless, certain Canadian stocks exhibit lower volatility and provide consistent income, offering stability and income to an investment portfolio. Notably, leading firms from sectors such as energy, utilities, and banking have established a reputation for reliable dividend payments, making them appealing choices for passive-income investors.
In light of this, here are three fundamentally strong Canadian stocks that could potentially deliver relatively safe and sustainable passive income with an investment of $10,000.
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A top energy stock
Canadian energy companies are famous for their reliable dividend payments and growth, and Canadian Natural Resources (TSX:CNQ) stands out as one of the top picks. This oil and gas giant has been consistently increasing its dividend at a breakneck pace, rewarding shareholders with higher cash. Over the past 24 years, this energy company has increased its dividend by an impressive compound annual growth rate (CAGR) of 21%.
In addition to stable and growing payouts, Canadian Natural Resources stock offers a decent yield of 4.3% near the current levels. Further, it has delivered substantial capital gains and outperformed the broader markets. For instance, it has jumped over 267% in the past five years, delivering an average annualized return of close to 30%.
The resiliency of the company’s dividends reflects its diversified and long-life asset base and high-value reserves that drive its earnings and cash flows. In addition, its low maintenance capital requirements, disciplined capital-allocation strategy, and strong balance sheet supporting growth measures are expected to drive free cash flows and future payouts.
A high-quality utility stock
Canadian utility companies are renowned for their resilient payouts. Their defensive business model and ability to generate predictable cash flows make them one of the safest investment options for durable and safe dividend income.
Among top utility companies, Fortis (TSX:FTS) is a dependable investment for its stellar dividend payment history. It boasts a dividend-growth history of 50 years and plans to increase it at a mid-single-digit rate in the upcoming years. Moreover, it offers a well-protected yield of 4.3%.
Fortis generates most of its earnings through regulated assets, which makes its payouts relatively secure. Further, its resilient business model and growing rate base enable it to generate solid cash flows. The electric utility company’s rate base is likely to expand at a CAGR of 6.3% through 2028, positioning it well to grow its future payouts.
A leading banking stock
Passive-income investors can rely on leading banks in Canada to earn safe dividends. Canadian bank stocks are famous for paying dividends for over a century. Bank of Montreal (TSX:BMO) is one of them, and it has paid dividends for over 195 years. Moreover, the financial services company increased its dividend at a CAGR of 5% in the past 15 years. In addition, Bank of Montreal stock offers a lucrative dividend yield of about 5.2%.
What stands out is that the bank has the longest track record of dividend distributions in Canada. This solid distribution history makes it one of the attractive stocks for investors to earn safe passive income.
The bank’s diversified revenue base, expansion of its loan portfolio, solid deposit base, and focus on improving efficiency will enable it to drive earnings and pay higher dividends. Over the medium term, Bank of Montreal expects its earnings to increase at a CAGR of 7 to 10%. This will enable it to grow its dividend by at least at a mid-single-digit rate during the same period.
Bottom line
These stocks are reliable investments to earn relatively safe passive income. Further, these companies have a resilient business model and growing earnings base to support future payouts. By distributing $10,000 equally in each of these stocks, investors can earn a quarterly income of about $112.95.
| Company | Recent Price | Number of Shares | Dividend | Total Payout | Frequency |
| Canadian Natural Resources | $48.83 | 68 | $0.525 | $35.7 | Quarterly |
| Fortis | $55.09 | 60 | $0.59 | $35.4 | Quarterly |
| Bank of Montreal | $119.42 | 27 | $1.55 | $41.85 | Quarterly |
