Canadian Dividend Machines: Stocks That Generate Passive Income

All dividend stocks can help you generate a passive income, but if sustainability and inflation resistance are important to you, stick to Aristocrats.

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Starting a passive-income stream with practically any dividend stock is possible, but building a steady and reliable stream might require you to pick your dividend stocks more judiciously. You have to look into dividend sustainability so your passive-income stream doesn’t suddenly shrink if the company suspends or slashes its dividends.

If you also want to create an inflation-resistant passive income, it’s a good idea to stick to Dividend Aristocrats that keep raising their payouts (usually every year).

The natural place to stash these well-oiled dividend machines is the Tax-Free Savings Account (TFSA), where you can access the dividend income generated by a stock (tax-free).  

A utility stock

Utility stocks are arguably among the safest dividend payers in the market, and Canadian Utilities (TSX:CU) takes this safety endorsement to a whole new level with its dividend history. It’s the only Dividend King in Canada and has grown its payouts for an impressive 51 consecutive years. With this business model and history, it’s arguably the safest dividend stock in Canada.

Created with Highcharts 11.4.3Canadian Utilities PriceZoom1M3M6MYTD1Y5Y10YALL6 Apr 20203 Apr 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '2520212021202220222023202320242024202520252025303540www.fool.ca

It’s also a decent pick right now, with its 5.5% dividend yield and a fair valuation. The stock is also climbing upward, but considering the condition of the market/TSX as a whole, a long-term bullish trend seems unlikely. Its fundamental strengths are still relevant, and you can choose to buy it now or wait until it’s discounted under the influence of a market crash.

A mortgage company

There are only a few publicly-traded, non-bank mortgage lenders in Canada, and First National Financial (TSX:FN) is at the head of this small pack. It’s one of the country’s largest non-bank mortgage lenders and caters to residential and commercial clients, offering flexible mortgages and other financing solutions.

Created with Highcharts 11.4.3First National Financial PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

However, the company shares multiple dividend-related traits with Canadian banks. It usually offers a generous dividend yield (6.7% right now), has a stable payout ratio history, and is also a well-established Aristocrat that raised its payouts for 11 consecutive years. It’s also slightly undervalued right now, increasing its attraction for value investors.

A telecom company

BCE (TSX:BCE), the largest telecom company in Canada (by market cap) and one of the most prominent 5G stocks in the country, is also one of the most brutally discounted Aristocrats trading on the TSX right now. It has lost about a third of its market value (34%) from its five-year peak, and this discount has pushed its yield up to a juicy 8.3%.

Created with Highcharts 11.4.3Bce PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

The company went through a challenging phase earlier this year, cutting thousands of jobs and pursuing significant restructuring. Negative regulatory variables both triggered and aggravated the condition. But BCE is turning things around. The stock climbed over 10% in the last 30 days alone, and if it continues at this pace, the yield might fall below 8%.

Foolish takeaway

The three dividend stocks are perfect for starting a long-term passive income. They offer generous yields, have solid dividend histories, and have stable payout ratios, endorsing their sustainability. Thanks to their yearly payout growth, a passive income from these stocks might even manage to keep pace with inflation.

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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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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