Building a dependable stream of passive income over the next 20 years starts with owning the right dividend-paying stocks. High-quality dividend companies tend to have strong fundamentals, a long history of paying and increasing dividends, and a focus on enhancing shareholder value regardless of market cycles. Over time, these steadily rising payouts can compound into a meaningful and reliable income source.
Notably, many of the top dividend payers are large-cap companies. Their resilient business models generate stable revenues, steady earnings, and robust free cash flow, all of which support sustainable dividend payments. This financial strength allows them not only to maintain dividends during challenging periods but also to grow those distributions as their businesses expand.
In this context, here are two top Canadian dividend stocks investors can consider for building a reliable passive-income portfolio.
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Passive-income stocks #1: Enbridge
Enbridge (TSX: ENB) is one of the most reliable Canadian dividend stocks to start building a passive-income stream. The company has rewarded investors with regular dividend payments and consistently increased them year after year (for 31 consecutive years) across all market conditions, including economic and commodity downturns. Moreover, the energy infrastructure company is well-positioned to maintain its dividend-growth streak over the coming years.
Notably, almost all of Enbridge’s earnings come from regulated assets or long-term, take-or-pay contracts. This structure shields the company from short-term swings in commodity prices, reducing earnings volatility. In addition, approximately 80% of Enbridge’s cash flow benefits from regulatory protections and inflation-linked adjustments, helping it to sustain its payouts over time.
Enbridge targets a payout ratio of 60% to 70% of distributable cash flow (DCF). This range strikes a balance between rewarding shareholders and retaining sufficient capital to fund growth projects and maintain a strong balance sheet.
Looking ahead, Enbridge’s diversified revenue base and the ongoing momentum in its core liquid pipeline and utility businesses provide a solid base for continued growth. Management expects mid-single-digit earnings and DCF growth over the long term. As these metrics expand, they should translate into higher dividends.
Overall, Enbridge’s solid dividend payment history, resilient earnings, and visibility over future payouts make it a top dividend stock for passive income. ENB stock also offers a compelling yield of 5.9% based on its quarterly payout of $0.97 per share and closing price of $65.95 on January 19.
Passive-income stocks #2: Royal Bank of Canada
Canada’s top bank stocks are reliable passive income generators, and Royal Bank of Canada (TSX: RY) is one of the most consistent dividend payers in the group. Royal Bank has a solid history of delivering a consistent dividend across multiple economic cycles.
Over the past decade, Royal Bank has increased its dividend at an annualized rate of 7%. This dividend growth is supported by its expanding loan portfolio, a stable and sticky deposit base, and ongoing efficiency improvements that enhance profitability. These factors provide a solid earnings foundation to drive future dividend increases.
Royal Bank’s payouts are also likely to be supported by its highly diversified revenue base, reducing its dependence on any single line of business. This diversification, coupled with cost control measures and strong asset quality, positions it well to deliver steady earnings. Further, its strong balance sheet, conservative risk management practices, and strategic acquisitions provide additional support for long-term growth.
Overall, Royal Bank is a reliable passive-income stock, and it maintains a sustainable payout ratio of 40% to 50%.
