SLF:CC - How to Build a Bulletproof Passive-Income Portfolio With Just $25000

2023-11-23 19:00:00 ET

Investing in dividend stocks is a low-cost and capital-efficient way to create a passive-income stream for life. However, investing in dividend stocks can be quite tricky as these payouts are not guaranteed and can be suspended or clawed back if a company’s financials deteriorate.

You need to look at several aspects before investing in dividend stocks, including the company’s balance sheet debt, payout ratio, and projected free cash flow growth.

While interest rates were low, capital-intensive companies such as Algonquin Power & Utilities and Northwest Healthcare got access to debt at a cheap rate, allowing them to fuel their expansion plans easily. But as interest rates were hiked in the last 20 months, interest payments ballooned significantly, resulting in significant dividend cuts for both these TSX stocks.

While AQN operates in the utilities sector, Northwest is a healthcare-focused REIT ( real estate investment trust ). Both these companies were part of recession-resistant sectors but were exposed to interest rate risks.

Given these factors, here are two blue-chip TSX dividend stocks you can own right now.

Brookfield Infrastructure Partners stock

Down 35% from all-time highs, Brookfield Infrastructure Partners ( TSX:BIP.UN ) currently offers you a dividend yield of 5.7%.

A sizeable portion of its organic growth consists of embedded inflationary escalators and secured capital expansion projects. Around 70% of BIP’s cash flows are indexed to inflation compared to its peers that have nominal-based tariffs. Its inflation-linked growth allows Brookfield Infrastructure to fuel organic growth without raising additional capital.

Its inflation-indexation should allow Brookfield to add over US$100 million in funds from operations in 2023, providing it with a competitive moat. Moreover, the company has insulated itself from rising debt costs as 90% of its loans are at fixed rates with an average maturity of seven years.

Priced at less than 10 times forward earnings, BIP stock is really cheap, given its forecast to increase cash flows by 12% annually in the next three years.

Sun Life Financial stock

A Canada-based financial heavyweight, Sun Life ( TSX:SLF ) provides savings, retirement and pension products globally. With an annual dividend payout of $3.12 per share, Sun Life offers you a forward yield of 4.5%.

In the third quarter (Q3) of 2023, Sun Life reported a net income of $871 million, up from $760 million in the year-ago period. Sun Life delivered solid results as it continue to benefit from a diversified revenue mix, growth in SLC Management fee-related earnings, and organic growth in Canada and Asia.

Sun Life completed its acquisition of Dialogue in Q3, which is a virtual health and wellness provider. It also increased investment in Bowtie, a Hong Kong-based virtual insurer. Sun Life first partnered with Bowtie in 2018, and the latter has grown its digital distribution, sales, and market share in recent years.

Priced at 10.4 times forward earnings, SLF stock is quite cheap and is positioned to outpace the broader markets in the next 12 months.

The Foolish takeaway

An investment of $25,000 distributed equally in the two dividend stocks can help you earn around $1,275 in annual dividends. If these payouts rise by 10% each year, your dividends will double within the next seven years. You should identify other quality dividend stocks with robust balance sheets and diversify your equity portfolio, reducing overall risk in the process.

The post How to Build a Bulletproof Passive-Income Portfolio With Just $25,000 appeared first on The Motley Fool Canada .

Fool contributor Aditya Raghunath has positions in Algonquin Power & Utilities. The Motley Fool recommends Brookfield Infrastructure Partners and NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy .

2023