Earning passive income is one of the best strategies for investors, especially those using a tax-advantaged, registered account. Passive income investing allows investors to continuously compound their income, while also being a less risky way of investing, all else being equal.
Passive income investments become even better performers against the broader market during periods of heightened volatility and poor financial market performance, so these are the types of stocks most investors should be considering adding to their portfolio today.
When looking for potential passive income stocks, it’s almost always recommended to start with the Canadian Dividend Aristocrats list. This is a list of some of the top dividend paying companies in Canada, that have a consistent track record of not only maintaining the dividend but also increasing it.
Two of the top dividend aristocrats in Canada are Telus Corporation (TSX:T)(NYSE:TU) and North West Company Inc (TSX:NWC).
Telus
Telus is one of the big three telecoms in Canada and has been the top performer of the three in terms of churn rate, as well as being recognized as having some of the fastest wireless network speeds in Canada.
It has a technical partnership to share BCE‘s superior wireless network, which has proven to be invaluable to Telus, and helped it gain a nearly 30% share of the Canadian wireless market.
One of the main things Telus has lacked was a solid wirelines business, but with the continued work it’s done to improve that, Telus looks like it’s firing on all cylinders.
To achieve this, it has been heavily investing in its infrastructure, building out its fibre to the home network ahead of the launch of 5G. In addition to 5G purposes, the fibre also increases speeds now, allowing Telus to offer its customers faster and more reliable services.
There is a lot of growth potential for Telus, especially considering Canada lags behind a number of top global economies in terms of wireless penetration.
The dividend pays $2.33 annually, which yields roughly 4.7% today, a very attractive figure given the growth opportunities that exist in both the dividend and the share price.
North West Company
North West Company is a grocery and retail company serving Northern and Western Canada. What investors will be most interested to know is that North West is a consumer staple, so its business should be a lot steadier across different economic cycles, relatively speaking.
It’s a company that has been managed extremely well and has a very manageable debt level, with just a 2.3 times net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA).
The company will continue to see expansion and growth exist, but it will be slower, more stable growth, as it continues to build out its reach and integrate its new acquisition.
The acquisition is the purchase of its North Star Air division, which the company brought in-house to give itself more vertical integration and build up a major competitive advantage, especially to the more remote areas it serves.
In terms of share price, its stock is slightly undervalued, though capital gains won’t be as prevalent with NWC, as it’s a highly stable stock with low volatility.
Its dividend yields roughly 4.8% and the payout ratio of its net income is less than 70%, giving it ample room to increase it as it grows earnings, while still keeping it sustainable.
Bottom line
While both of these companies offer dividends that yield less than 5%, both are extremely sustainable and offer the potential for long-term dividend growth, as well as share price appreciation, especially in the case of Telus.
