3 Dividend Stocks to Generate Passive Income

Investors seeking passive income and superb long-term growth should consider investing in rewarding stocks such as TransAlta Renewables Inc. (TSX:RNW) and two others.

| More on:

Finding the right mix of investments, particularly those that can provide years of uninterrupted income growth is of paramount importance to investors, particularly those that still have a few years before reaching retirement.

Fortunately, the market gives us plenty of options to consider, and the three stocks noted below are not only income-earnings greats but also operate in unique areas of the market that are not only secure but bound to see increased growth over the next few years.

Renewable energy can power your portfolio as well as your home

One of the most amazing opportunities on the market at the moment comes in the form of renewable energy, and TransAlta Renewables (TSX:RNW) is one company that should be on the watchlist of nearly every investor. Here’s the allure — as a society, we are steadily moving away from fossil- fuel-burning facilities and opting for renewable ones. Considering that a typical utility can provide a steady stream of revenue for a few decades, this is a long-term opportunity like no other.

TransAlta currently has a generating capacity of over 2,400 MW that is scattered across a slew of facilities in Canada, the U.S., and Australia. That diversification, which extends to TransAlta owning a multitude of different renewable energy technologies including wind, hydro, and solar is just one reason to consider the stock as a long-term pick.

TransAlta’s monthly distribution, which provides an appetizing 6.90% yield and has seen a 6% annual bump stemming back the past six years with a stable payout ratio falling between 80-90%, is the other reason.

Not all utilities are dirty

Algonquin Power (TSX:AQN)(NYSE:AQN) is an interesting pick for long-term investors that are looking for the defensive and secure income stream that a traditional utility offers, while at the same time benefiting from the emerging appeal of renewable sources.

Algonquin’s business is split under two subsidiaries: Liberty Power and Liberty Utility. Together they serve over 750,000 customers across the U.S., with the power segment providing generating capabilities from a suite of 35 renewable solar, wind, and hydro facilities, while the utility segment distributes electric, water, and gas service to customers.

In terms of a dividend, Algonquin offers an attractive quarterly payout that provides a 4.55% yield that has seen a steady stream of hikes over the years.

Let your investment work (on the railroad)

Despite the stereotypical view, railroads still haul an immense amount of freight on a daily basis and constitute a key part in keeping the economy moving. In fact, that’s one of the reasons why Canadian National Railway (TSX:CNR)(NYSE:CNI), which is the largest railroad in Canada, remains one of the most promising long-term investments that millennials can make.

Railroads haul just about everything. Canadian National hauls over $250 billion in goods annually across a broad range of products ranging from chemicals and automotive components to finished products and crude. That freight is also incredibly diversified, with no single commodity or product being hauled constituting a majority of the train’s overall freight.

Adding to that appeal is the fact that the railroad itself operates on dedicated right-of-way tracks that have seen entire cities and communities getting built around them, effectively making it nearly impossible for a competitor to emerge and challenge the railroad. Throw in the fact that Canadian National is the only railroad on the continent with access to three coastlines and a competitive advantage begins to emerge.

Apart from the $3.9 billion that Canadian National is spending on upgrading its already enviable network, the company’s quarterly dividend has seen double-digit gains in past years and is likely to see continued growth for the foreseeable future, making the seemingly low 1.78% yield a great long-term buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou owns shares of Algonquin Power & Utilities. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »