Building a passive-income portfolio depends on when you need the income and how much you can invest. These two parametres can help you determine the ideal dividend stocks for investment.
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Scenario #1: Need dividend income in the next three to five years
Let’s assume you are closer to retirement. You do not have time to compound your returns and need a payout in the next three to five years. In such a scenario, you could consider investing in dividend-growth stocks that grow their dividends by single or double digits.
Canadian Natural Resources (TSX: CNQ) is a good option. It has the largest oil and gas resource, which has a low depletion rate and needs lower maintenance and capital expenditure. The company increases its cash flow by increasing the mix of high-margin synthetic crude oil, light crude oil, and natural gas liquids. The company has been growing its dividends for the last 25 years at a compounded annual growth rate (CAGR) of 21%.
For 2025, CNQ has increased its dividend by 9.9% to $2.35. A $10,000 investment can buy you 227 stocks at $44.06 and pay $533.45 in annual dividends in 2025. If you have five years to retire and the company grows its dividend annually by 10% in these five years, your dividend income could increase to $859.
CNQ does not offer a dividend-reinvestment plan. However, the high dividend growth rate can help you earn higher passive income and beat inflation. It is a good stock to invest in to take care of medical expenses that grow at a faster rate.
Scenario #2: Need dividend income immediately
Another scenario could be you have a lump sum amount, maybe your annual bonus or a capital gain from a stock sale in your Tax-Free Savings Account (TFSA). You need this money to last a long time and handle surprise expenses.
Instead of keeping the money idle, you can consider parking the money in high-yield dividend stocks that can give you more than 10% yield in a year.
Asset management firm Fiera Capital (TSX:FSX) can give you a 13.8% yield in a year. The company may not be able to grow dividends for a few years. However, it can give high quarterly payouts while keeping your principal investment more or less intact as the share is trading at $6.26, closer to its 52-week low of $5.93. This reduces the downside risk.
Fiera Capital’s stock price is highly volatile and influenced by the overall performance of the equity markets. The stock can surge as much as 50% to $9.5 in a bull run.
A $10,000 investment today can buy 1,597 shares of Fiera Capital and earn you $1,379 in annual dividends while keeping your $10,000 invested. When the stock price increases in a bull market, you can sell some shares and book capital gain.
Investor takeaway
While Canadian Natural Resources can grow your yearly income significantly in the long term, Fiera Capital can give you high income now and capital gain in the medium term. Both stocks are a good investment today, but the way to maximize returns is different. Invest in stocks that align with your financial needs.
