BMO:CC - Earning While You Sleep: The Power of Dividend Investing in Canada
2023-11-30 15:45:00 ET
Dividend investing can be the easiest way to create plenty of cash for Canadian investors . After all, no matter what the market does you’ll still create income through dividend payments from strong stocks. But that’s the key here. Canadians must find dividend stocks that will remain strong, with dividend income coming out no matter what happens on the markets.
So today, let’s learn how you can earn even while you’re sleeping. This entails finding a great dividend stock to invest in and reinvesting to create the most amount of cash possible.
How it works
Dividend income is passive income. That income will come out no matter what you’re doing, and that includes sleeping. After setting up your investments you can look forward to money coming your way until, well, forever!
But that only happens for the right dividend stock. That’s why when it comes to seeking out passive income, there are a few things to consider. And if you’re focused on dividend income, the main thing will be figuring out how safe that dividend is.
That’s why it’s important to look at returns as well, along with payout ratio. You want to see that the stock is continuing to do well even in rough environments. That the company is being responsible to make sure they can make it through hard times. And furthermore, that the payout ratio is healthy between 50% and 80%. Too low, and the company won’t be so focused on dividend increases. Too high, and a cut could be coming.
Dividend stocks to consider
This is why I like to look to blue-chip companies with a strong future ahead, combined with Dividend Aristocrats. These are companies that have increased their dividend each year for at least the last five years.
There are a few industries to look at in this case. Financial institutions are a great place to start, as most (if not all) will have a solid dividend yield that tends to increase year after year. Another area is energy stocks, but I wouldn’t necessarily look to oil and gas stocks here. Even though there are blue-chip companies in this area, the times are changing. And that could leave this industry relatively unsafe.
So in my view, the two I would consider picking up on the TSX today are Bank of Montreal ( TSX:BMO ) and Brookfield Renewable Partners LP ( TSX:BEP.UN ).
How much you could earn
BMO stock is a great option here because it’s the oldest of the Big Six Banks, over 200 years old! But it’s still growing, thanks to investing in Bank of the West in the United States. Furthermore, shares remain valuable trading at 11 times earnings, offering strong future returns. As for dividends, you can grab a yield at 5.34%, which is higher than its five-year average of 4.23%. And with a payout ratio of 56.4%, that dividend looks quite safe.
As for Brookfield stock, the company has been expanding into every area of renewable energy. It has created partnerships, acquisitions, and other growth opportunities. Though the last year has certainly been difficult, that’s likely to change as the market recovers, bringing up share value and asset value as well. It now has a dividend yield of 5.51%, again higher than its five-year average of 3.96%. The issue here is its payout ratio, currently at 649%. That’s astronomical, true, but the company has its debts under control.
That’s why this is a different situation. While the payout ratio is high, its debt-to-equity ratio is just 86%, meaning it would take 86% of equity to pay off all debts. Therefore, BMO could certainly get loans before needing to cut a dividend. Finally, again, this should change as the market improves. Which is why these are the best dividend stocks for investors looking to earn even while they sleep.
The post Earning While You Sleep: The Power of Dividend Investing in Canada appeared first on The Motley Fool Canada .
Fool contributor Amy Legate-Wolfe has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy .
2023