Most dividend investors need to play a “balancing” game with their dividend picks. If the yield is too high, it may carry the risk of being financially unsustainable, and the investors have to balance the risk with the reward. They also have to balance their dividend needs with their growth needs.
If they only require a modest dividend income, they can divide the capital proportionally between dividend stocks and growth stocks (and stocks that offer both returns). But if you have specific financial goals like a five-figure passive income, you may need to divert a significant amount of capital to the right dividend stocks.
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A bank stock
Canadian bank stocks are an exceptional and highly coveted set of dividend stocks. While some bank stocks offer a good mix of both dividends and long-term growth potential, Canadian Imperial Bank of Commerce (TSX:CM) is currently one of the best choices in the sector for its dividends. The stock is currently trading at a 30% discount; consequently, the yield has increased to an attractive level of 6.1%.
At this yield, a healthy amount of capital, like $50,000, can help you generate a yearly income of about $3,050. The attractive yield is backed by strong finances and a healthy payout ratio, and since the bank is an Aristocrat, the dividends will keep on growing on a yearly basis. This will allow your passive income to grow continuously.
An energy stock
The energy stock in Canada is home to several good dividend stocks, but many of them are quite vulnerable to fluctuating oil prices.
One segment of energy stocks that’s partially sheltered from this problem is pipeline stocks like TC Energy (TSX:TRP). Not only is it a pipeline stock, but its business model leans quite heavily towards natural gas instead of oil, which is cleaner than fossil fuel and much less vulnerable to a renewable revolution than oil is.
While this didn’t keep the company from sinking with the rest of the sector in 2014, it was one of the few energy stocks that recovered before the post-pandemic surge that pushed the entire energy sector to new heights. So, its long-term growth potential is already reason enough to consider this stock. But it’s currently quite heavily discounted, pushing the yield up to 7.7%.
This yield is quite significant, especially for an Aristocrat. A $50,000 capital in this energy sector Aristocrat can result in a mouthwatering yearly income of about $3,850. As an Aristocrat, it will also contribute towards the regular growth of your passive-income stream.
A financial stock
Atrium Mortgage Investment (TSX:AI) is a completely different type of dividend stock than the other two on this list. It’s not an Aristocrat, and it doesn’t have, and it’s also not a large-cap giant. It has a market capitalization of about $483 million, but there are three reasons it’s a perfect pick to help you start a solid, five-figure passive income.
The first reason is its attractive valuation. The stock is currently trading at a price-to-earnings ratio of 9.8, partly influenced by its price discount. The second reason is its financially sustainable dividends, as reflected by the healthy payout ratio of 75. Finally, the juicy yield of 8.1%. If you invest $50,000 in the company, you can generate an income of about $4,050 a year.
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Foolish takeaway
If you can divert about $150,000 of savings/capital into these three dividend stocks, you can start a passive income stream of about $10,950 — a healthy five-figure passive income. It translates to a decent monthly income of about $900, which can help you cover a major or multiple small regular expenses.
