Nobody likes to see the value of their investments in the stock market begin to crumble, but market corrections are unavoidable. The stock market is inherently risky and the market is cyclical in nature. As the stock market goes through another round of volatility, it is the long-term investors who know this is a time to take advantage of the situation.
Stock market investing is an excellent way to create a passive income stream. Using the right assets, like high-quality dividend stocks, you can generate a significant amount in passive income through your self-directed investment portfolio.
Today, we will discuss two dividend stocks you can consider adding to your portfolio and how to use them to generate tax-free wealth growth.
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Telus
Telus Corp. (TSX: T) is a $30.8 billion market capitalization giant in the Canadian telecom sector. As one of the Big Three wireless service providers in the country, Telus is a highly defensive business. It boasts over 9 million mobile phone subscribers nationwide, holding around a third of the market share.
The telecom provider has been increasing its free cash flow (FCF) by increasing subscriber numbers and cross-selling services. It pays its shareholders their dividends using up to 75% of its FCF and offers a dividend reinvestment plan (DRIP) to help them accelerate their wealth growth through the power of compounding.
As of this writing, Telus stock trades for $20.50 per share and boasts a juicy 7.9% dividend yield, inflated by the 12.5% decline in its share prices from its 52-week high.
Fiera Capital
Fiera Capital Corp. (TSX: FSZ) is a $646.6 million market capitalization Canadian asset management company headquartered in Montreal. The company offers traditional and alternative investment solutions to clients that include institutional investors, private wealth clients, and retail investors. It caters to a massive market and offers a complete range of investment strategies through balanced and specialized mandates.
The underlying company generates stable cash flow from the base management fees it charges for the assets under management (AUM). And its payout ratio for shareholder dividends never goes beyond 100%.
The ongoing market volatility has led to a decrease in its share price but inflated its dividend yield. As of this writing, it trades for $6.02 per share and offers an almost too-good-to-be-true 14.4% dividend yield. This might be an opportune time to lock in such high-yielding dividends into your portfolio.
Foolish takeaway
Such high dividend yields should be alarming under normal circumstances. When investing in dividend stocks, you must also consider whether the underlying business has the solid fundamentals to sustain the high-yielding payouts.
One of the advantages of market downturns is that they drag down the share prices of high-quality dividend stocks and inflate dividend yields. This gives you the chance to lock in higher-than-usual dividend yields.
Doing so and using available contribution room in your Tax-Free Savings Account (TFSA) to hold the dividend stocks can help you enjoy all that passive income without incurring taxes on dividends or capital gains. To this end, Telus stock and Fiera Capital stock can be attractive investments right now.
