Dividend investing is one of the simplest, if not effortless, ways to earn passive income. However, if you employ this strategy, your stock holdings should be reliable dividend payers. Building a lucrative passive-income portfolio is more about finding sustainable payouts than meaty dividends.
Large-cap stocks whose businesses provide essential products and services should be top-of-mind choices. Pembina Pipeline (TSX: PPL) in the energy sector and TELUS (TSX: T) in communications services form a formidable pair. A combined investment of $35,000 ($17,500 each) transforms into a substantial quarterly passive income.
The lump sum amount shouldn’t discourage you if you don’t have it. Use a Tax-Free Savings Account (TFSA) to accumulate shares of both. This would mean maximizing the annual contribution limit of $7,000 ($3,500 each) for five years. Assuming the yields remain constant (5.93% average), you’d have tax-free earnings of $518.88 every quarter after 2029.
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Screaming buy
Pembina Pipeline is known in North America’s energy industry for its integrated value chain. The $33.7 billion 70-year-old oil major provides energy transportation and midstream services. It owns hydrocarbon liquids and natural gas pipelines, gas gathering and processing facilities, oil and natural gas liquids infrastructure, offers logistics services, and operates an export terminals business.
Fee-based contracts support the company’s operations, and Pembina derives revenues from take-or-pay agreements. Because of its robust cash flows and positive earnings outlook, PPL is a screaming buy in November. At $58.07 per share, the dividend yield is 4.75%. Notably, current investors are up 32.47% year to date.
Pembina’s balance sheet after two quarters this year remains strong. In the six months ending June 30, 2024, revenue and earnings rose 11.7% and 25.3% year over year to $3.4 billion and $917 million. The adjusted cash flow from operations in the second quarter (Q2) of 2024 increased 38.1% to $837 million from a year ago, a new quarterly record
The business thrives due to the strong volume growth in conventional pipelines (6%) and gas processing (4%). Pembina expects multi-year volume growth beyond 2024 and the rest of the decade.
The growth drivers include the Trans Mountain Pipeline expansion, new West Coast liquefied natural gas (LNG) and natural gas liquids (NGL) export capacity, and new petrochemical facilities boasting significant ethane and propane demand.
Market analysts recommend a ‘buy’ rating owing to the growing energy demand and Pembina’s strong position in the Western Canada Sedimentary Basin.
Dividend grower
TELUS will maintain its appeal to TFSA investors if the 5G stock can sustain its 20-year dividend-growth streak. At $21.90 per share (-2.34% year to date), Canada’s second-largest telecommunications firm pays a hefty 7.11% dividend. Management also targets semi-annual dividend increases through the end of 2025 (7-10% with the annual increase from 2023).
The $32.5 billion telco plans to reshape the telco industry, particularly the digital landscape. On October 28, 2024, TELUS announced partnering with Photonic, a BC-based company advancing quantum technology commercially.
The collaboration aims to accelerate the development of next-generation quantum communications in Canada. Both companies plan to build the foundation for a quantum internet.
Portfolio for keeps
An energy stalwart like Pembina Pipeline is best paired with Dividend Aristocrat TELUS if you were to build a lucrative passive-income portfolio for keeps.
