When you’re looking to invest $10,000 for passive income, the goal is to strike a balance between stable dividend payments and long-term growth. The TSX offers a range of dividend stocks, and understanding what to prioritize can make your investment journey smoother. So, let’s look at what to consider and, of course, a dividend stock to pick up today.
What to watch
First, consider the dividend stock’s yield. While a high yield is tempting, a sustainable payout ratio, ideally under 75%, is crucial to ensure the dividend stock can maintain its dividends even during tough times. Look at the company’s track record of consistently paying and increasing dividends, as this indicates financial stability and shareholder focus.
Second, evaluate the company’s sector. Utilities, financials, and real estate sectors often provide reliable dividends, but these differ in growth potential and risk. Ensure your portfolio is diversified to reduce exposure to any single sector. Then, analyze the dividend stock’s earnings growth and cash flow. A firm with strong revenue and profit growth is better positioned to sustain and grow its dividends. Keep an eye on macroeconomic factors, too. Rising interest rates or sector-specific challenges can impact dividends, especially for companies with high debt levels.
Consider a big bank
For passive-income seekers, Bank of Nova Scotia (TSX:BNS) is an attractive option. It currently offers a forward dividend yield of 5.31%, which is higher than the TSX average. The bank has a long history of dividend payments and boasts a five-year average dividend yield of 5.64%. With a payout ratio of 74.26%, BNS is allocating a sustainable portion of its earnings to dividends, leaving room for growth and reinvestment.
In BNS stock’s most recent quarterly results, Scotiabank reported a net income of $7.89 billion, reflecting a 6% increase from the previous year. The bank achieved a return on equity (ROE) of 11.3%, indicating efficient utilization of shareholder capital. Furthermore, Scotiabank’s book value per share stood at $68.45, suggesting the dividend stock is reasonably priced relative to its assets.
Looking ahead, BNS’s international operations in Latin America are poised for growth, offering diversification beyond the Canadian market. The dividend stock’s focus on digital transformation and operational efficiency is expected to enhance profitability over time. While the broader financial sector faces challenges such as rising interest rates and slowing loan growth, BNS has shown resilience by maintaining a robust balance sheet with $420.6 billion in cash as of the most recent quarter.
Making that money right now
Historically, BNS has weathered economic downturns better than many peers, thanks to its global diversification and prudent management. Its performance over the past five years, with a price-to-earnings (P/E) ratio averaging around 10.88, reflects value, especially when compared to its peers. The current forward P/E of 10.41 underscores the dividend stock’s attractiveness at current levels, given its steady earnings potential.
Analysts suggest that BNS is undervalued based on its strong dividend yield and growth prospects. For passive income investors, this creates an opportunity to lock in a reliable income stream at a compelling valuation. The stock’s 52-week range of $60.68 to $80.14 highlights the potential for price appreciation alongside dividend payments. So, how much could $10,000 bring in should the stock reach 52-week highs and add in dividends?
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
| BNS – now | $73.80 | 136 | $4.24 | $576.64 | quarterly | $10,000 |
| BNS – highs | $80.14 | 136 | $4.24 | $576.64 | quarterly | $10,899.04 |
In conclusion, with $10,000 to invest, consider allocating a portion to BNS for a mix of passive income and long-term value. It could earn you a total of $1,475.68 from returns and dividends! Its dividend strength, combined with global growth opportunities, positions it as a solid choice for investors seeking stable returns. While no investment is without risk, BNS’s fundamentals and history make it a standout option on the TSX for passive income.
