The Smartest Income Stocks to Buy With $5,000 Right Now

Do you want to increase your dividend income? Check out these three smart Canadian income stocks for a long-term hold.

Robin Brown

Robin Brown has been a Motley Fool contributor since January 2020. He has lived in Canada, Norway, and Australia where he studied theology and business management. Robin works as a commercial real estate manager, as well as an investment research advisor for a private investment manager. Today, he provides equity research and analysis for a private family office. He enjoys traveling, hiking, fishing, and spending time with his wife and children.

Published May 15, 10:30 am EDT

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Income stocks are nice to hold during times of market volatility. Even though your stock price might fluctuate, you can still collect an income stream that can offset that instability.

However, it is important to not focus on income at all costs. Over the past few years, many high-yielding stocks have lost substantial capital value. There is no point in earning income if you lose the same amount (or more) of your capital. You want a stock that can deliver solid long-term capital returns and a growing stream of dividend income.

If you have $5,000 to invest, here are three smart income stocks I’d consider buying now.

Canadian Natural Resources: A top energy income stock

The first stock is an absolute income legend in Canada. Canadian Natural Resources (TSX:CNQ) has grown its dividend for 25 consecutive years by a +20% compounded annual growth rate. It is the largest energy producer in Canada.

It is a very low-cost producer, so it can be flexible when energy prices drop. An excellent balance sheet and long-term reserves provide Canadian Natural longevity and foresight to be opportunistic when the market is weak.

Canadian Natural just delivered record quarterly production and strong financial results in the first quarter. It raised its quarterly dividend by 4%. This income stock yields 5.3% right now. A $5,000 investment would earn $66.39 quarterly or $265.55 annualized.

Pembina Pipeline: A leading Canadian infrastructure stock

Another income stock worth holding right now is Pembina Pipeline (TSX:PPL). It provides energy infrastructure to the Western Canadian energy industry. While it has exposure to the energy industry, its income is much less affected by energy prices.

In fact, around 85% of its income is from contracted sources. That income more than covers its dividend. That just means its dividend is very safe.

Pembina just announced a good quarter where it saw strong volumes and 8% earnings-per-share growth. It also increased its quarterly dividend by 3% for the quarter.

Right now, this income stock yields 5.5%. If you put $5,000 into Pembina stock, you would earn $67.45 quarterly, or $269.80.

AltaGas: A utility stock for income

AltaGas (TSX:ALA) is a hybrid utility and midstream stock. Today, over 90% of its business is contracted, and it only has minimal commodity price exposure. This makes it an attractive place to invest for income.

Its utility business has enjoyed strong growth as it has invested in its rate base. Likewise, its midstream is benefitting from strong demand in Asia for propane. It has opportunities to both build greenfield capital projects and optimize its current asset base.

The company delivered 4.3% earnings before interest, tax, depreciation, and amortization (EBITDA) growth in its first quarter. Its utility saw 15% growth in the quarter, which is impressive for a utility.

In the quarter, the company reiterated its guidance to grow its annual dividend by a 5-7% compounded annual rate for the next several years. It yields 3.36% today. If you put $5,000 into this stock, you would earn $41.90 quarterly, or $167.58 annually.

COMPANY	RECENT PRICE	NUMBER OF SHARES	DIVIDEND	TOTAL PAYOUT	FREQUENCY
Canadian Natural Resources	$43.90	113	$0.5875	$66.39	Quarterly
Pembina Pipeline	$52.31	95	$0.71	$67.45	Quarterly
AltaGas	$37.54	133	$0.315	$41.90	Quarterly