When it comes to building passive income in the stock market, one of the most common concepts investors often hear is to find reliable Canadian dividend stocks that will pay you first.
That concept has grown in popularity because when you’re buying stocks, especially dividend stocks, what you really want is to own businesses that are built to consistently generate cash flow and return a portion of that cash to you as an investor.
And while most people immediately think of the most reliable dividend stocks on the market, like the big banks or utilities, there’s actually another way to be paid first that many investors overlook.
In fact, some Canadian stocks are structured in a way whereby they essentially get paid before almost anyone else, and then pass that cash directly on to shareholders.
So, if you’re looking to build a portfolio that generates reliable passive income, here are three Canadian stocks that are specifically built for investors who want to be paid first.
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A reliable Canadian dividend stock you can always count on
When it comes to traditional dividend stocks, there’s no question that one of the best and most reliable on the TSX is Fortis (TSX: FTS).
Utility stocks, in general, are some of the best dividend investments you can buy because of the nature of the industry.
They operate essential services that people need every single day, like electricity and natural gas, and, on top of that, their rates are regulated by governments, which makes their revenue and earnings incredibly predictable.
That’s exactly why Fortis has been able to increase its dividend every single year for more than five decades.
The company consistently generates steady cash flow, and because its future earnings are so predictable, it can confidently continue raising its dividend while still investing in future growth.
So, while Fortis doesn’t offer the highest yield on the market, currently sitting at roughly 3.2%, it’s easily one of the best Canadian dividend stocks to buy if your goal is to be paid first through reliable and consistent long-term dividend growth.
Two high-yield stocks built to generate cash flow
While Fortis is one of the best traditional dividend stocks you can buy and hold for years, there’s another category of stocks that takes the idea of being paid first even further, and that’s royalty companies.
Royalty businesses are ideal for dividend investors because their businesses are structured in a way whereby, instead of generating profits and then paying dividends, they take a cut of revenue right off the top.
That means these businesses get paid before many of the costs that traditional businesses have to deal with are incurred, which is why these Canadian stocks can often offer higher yields and more consistent income.
The best energy royalty stocks
For example, Freehold Royalties (TSX: FRU) is one of the best energy royalty stocks in Canada.
Instead of drilling for oil itself, Freehold owns the land and collects a percentage of the production revenue from companies that operate on it.
So, it doesn’t have to spend billions on drilling or maintaining operations. It simply collects its share of the revenue and passes a significant portion of that cash on to investors through monthly dividends. In fact, right now Freehold offers a yield of 6.3%.
Similarly, Diversified Royalty (TSX: DIV) operates a different type of royalty model, but with the same core concept.
The company owns the rights to brands like Mr. Lube and Air Miles, and it earns a percentage of the revenue those businesses generate.
So, every time someone gets an oil change or uses one of those services, a portion of that revenue flows back to Diversified Royalty, and then ultimately to investors.
And because both of these companies are built around collecting top-line revenue, they constantly generate consistent cash flow, which allows them to offer attractive yields. Diversified Royalty, for example, offers an even higher yield than Fortis, currently sitting at roughly 6.6%.
So, if you’re a dividend investor looking for reliable Canadian stocks that can help ensure you get paid first, combining a dependable dividend growth stock like Fortis with high-yield royalty businesses like Freehold and Diversified Royalty is one of the best ways to do it.
