The Canadian stock market is a gold mine of income stocks. There are banking stocks, energy stocks, telecom stocks, real estate stocks, power stocks, utility stocks, and more with a rich history of paying regular dividends. Can a looming trade war change this? While a trade war can create a stir in the short term, it cannot alter passive income stocks for the long term. The significant interdependence between the U.S. and Canada and their geographic location puts them in a spot where tariffs won’t last long.
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Top Canadian stocks to buy for passive income
If you are looking to build a passive income portfolio that beats inflation and compounds your dividends in the long term, these three stocks are a top buy. What’s common between the three is they grow their dividends annually, offer dividend reinvestment options (DRIP), and are low-volatility stocks.
Telus stock
Telus Corporation (TSX:T) stock has a rich history of paying quarterly dividends and growing them by an average annual rate of 7%. At a time when BCE’s revenue is falling, that of Telus is rising. Telus is using the wholesale fibre mandate to its advantage and acquiring customers in new regions where its fibre networks are not available. In such areas, it is leasing the network of a rival to sell its bundled services.
The regulatory change favouring fibre network sharing has called for innovative thinking, including the concept of a network infrastructure subsidiary. Until the industry finds a way to work around the new rules, Telus is a better buy than BCE for its better fundamentals, 7% dividend growth, and DRIP.
CT REIT
Canadian Tire spun off its real estate arm long back. CT REIT (TSX:CRT.UN) has the first offer to buy or develop a Canadian Tire store and lease the remaining space to competitors. CT REIT acquires, develops, and maintains Canadian Tire stores in return for rent. Canadian Tire can deduct the rental expense from its income. CT REIT uses the money to maintain stores and meet capital needs. It distributes around 75% of the free cash flow to unitholders.
Since Canadian Tire is a major shareholder of the REIT, it gets the maximum dividend. This structure has helped the REIT generate a stable dividend and grow it at a 3% average annual rate.
Emera stock
Emera (TSX:EMA) operates in the utility sector, generating, transmitting, marketing, and trading electricity for its customers in Canada and the United States. It also transmits re-gasified liquefied natural gas from Canada to the United States through a pipeline.
The company earns in a regulated price sector, which means it benefits from higher energy prices and growing demand for electricity. The regular cash flows and price hikes have made it a dividend aristocrat with a rich history of paying and increasing dividends for more than two decades.
Emera expects to increase its adjusted earnings per share by 5–7% through 2027 and 7–8% through 2029 by investing in transmission infrastructure. It also looks to grow its dividends by 1–2%. You could consider investing in its DRIP program and compound your dividends.
