$2,000 might not seem like a lot of money to invest. But if you invest it wisely, it can go a long way. Compounding at 10% per year, $2,000 grows to $34,898 after 30 years. That’s not a bad result for what is just a few paycheques’ worth of savings for many Canadians.
In addition to creating compounding benefits for those who hold for the long term, investing can also generate passive income in the form of dividends and interest. If you invest $2,000 at a 5% yield, you get $100 in cash back each year. That might not sound like much, but it’s a lot more than you’d get from a savings account, and you can increase your income by investing a little more with each paycheque. In this article, I will explore three Canadian stocks that can get you started on your journey toward passive income with as little as $2,000 invested.
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Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is one of Canada’s cheaper large-cap energy stocks. At today’s prices, it trades at just 12.6 times earnings and 6.7 times cash flows. Energy stocks are not usually the most expensive out there because most investors don’t like betting on volatile commodity prices. However, CNQ is cheaper than even many energy companies. This is peculiar because it has decent growth prospects.
Canadian Natural Resources just recently acquired $6.5 billion worth of Canadian assets from Chevron, assets that should produce hundreds of millions a year in earnings if oil prices just stay where they are now. Also, the company’s historical growth has been good, with earnings compounding at 15.6% per year over the last five years. Finally, the company is extremely profitable, with a 21.25% net margin and a 19% return on equity. CNQ will perform well as long as oil prices remain fairly healthy.
Fortis
It’s hard to think of a stock better suited to today’s climate than Fortis (TSX:FTS). It is a utility company, which means it has a fairly heavy amount of debt — debt that is getting cheaper as a result of the Bank of Canada’s ongoing interest rate cuts. If the Bank of Canada keeps cutting rates, then the interest rates on TD’s variable rate debts will go down.
That’s not to say that the interest rate catalyst is the main reason to invest in Fortis, however. To the contrary, the stock has many long term things going for it. It has a consistent track record of re-investing and growing its business. It generally keeps its payout ratio well below 100%, which not all utilities do. Finally, it has an incredibly long dividend track record, with 51 consecutive dividend hikes under its belt. Overall, Fortis is a stock worth considering.
TD Bank
Toronto-Dominion Bank (TSX:TD) is the very definition of a beaten-down bargain stock. It got beaten down this year because of a money laundering investigation it was caught up in. The beatdown was partially justified: the bank did end up agreeing to a US$3 billion fine and a US$430 billion asset cap. However, it is now one of the cheapest large North American banks, trading at 10 times adjusted earnings. Thanks to a recent rally in the prices of bank shares, price-to-earnings ratios between 13 and 14 are now more common in the sector. So, TD looks like a bargain.
