Investors looking for considerable passive income could buy top-quality dividend stocks with high yields. Besides providing regular income and acting as a hedge against inflation, these stocks have the potential to generate substantial capital gains over the long term due to their solid earnings growth potential.
While several fundamentally strong Canadian companies offer reliable dividends, I’ll restrict my list to Canadian stocks offering high and reliable yields of at least 6%.
Enbridge
With its resilient dividend payouts and high yield, Enbridge (TSX: ENB) is one of the top Canadian stocks to earn considerable passive income. Enbridge owns an energy infrastructure business and is one of North America’s leading oil and gas transporters. Its high-quality assets witness a high utilization rate and generate resilient distributable cash flows (DCF) that easily cover its quarterly payouts.
The Canadian energy company has raised dividends for 29 consecutive years. It remains well-positioned to enhance its shareholders’ value further, driven by steady earnings from long-term contracts and power-purchase agreements. Enbridge’s multi-billion secured projects will likely expand its earnings base and drive future payouts. Also, the company’s continued investments in conventional and low-carbon energy sources and strategic acquisitions augur well for growth.
Enbridge’s management remains upbeat and expects its earnings per share and DCF per share to increase at a mid-single-digit rate in the long term. This will enable the company to expand its dividends at a low- to mid-digit rate in the future. While Enbridge’s dividend is likely to grow, its payout ratio of 60-70% of DCF is well-covered and sustainable in the long term.
Telus
Shares of Canada’s leading telecom company, Telus (TSX: T), are a solid investment in earning considerable passive income. The company is famous for generating profitable growth and enhancing shareholders’ value through higher dividend payments.
Telus has consistently increased its dividend under its multi-year dividend-growth program. Moreover, it has paid about $21 billion in dividends since 2004. In the future, Telus plans to increase its dividend further and will grow it by 7-10% per annum.
While the company is facing macro and competitive headwinds, its cost-efficiency programs and margin-accretive growth initiatives enable Telus to generate ample cash flows to support its payouts. Moreover, the company continues to grow its customer base and is investing in network infrastructure, operations, and technological advancements, which will likely bolster its future earnings and dividend payments. It currently offers a high yield of over 7%, while Telus’s payout ratio of 60-75% of its free cash flow is sustainable.
Bank of Nova Scotia
Similar to energy and telecom companies, Canadian banks are also famous for offering reliable payouts, making them a preferred choice for investors seeking considerable passive income. Among leading Canadian banks, Scotiabank (TSX: BNS) stock looks compelling for its high yield and stellar dividend payouts.
Scotiabank has been uninterruptedly paying dividends for more than a century. Moreover, it is offering a high yield of 6.6%. Also, its growing earnings base has allowed the financial services giant to expand its dividend by an average annualized growth rate of 6% since 2013.
The bank is poised to increase its dividend further on the back of diversified revenue sources, exposure to key growth markets, and operating leverage. Moreover, its solid balance sheet positions it well to deliver sustainable earnings growth and pay higher dividends in the coming years.
