Passive income can help investors accelerate their retirement plans by a few years. One proven and low-cost way of creating a steady stream of recurring income is by investing in fundamentally strong dividend stocks.
As dividends are not guaranteed, you need to invest in companies that are positioned to grow earnings at a consistent pace, allowing them to increase their payouts over time. Here are two such top TSX dividend stocks that can help you earn passive income for life.
Bank of Montreal stock
One of the largest banks in Canada, Bank of Montreal (TSX:BMO), currently offers shareholders a dividend yield of 5%. There are several reasons to invest in BMO stock today. First, it is a premium Canadian commercial bank with a top five market position in North America. Armed with a highly profitable banking business in Canada, BMO aims to gain traction in the U.S. with a digital footprint that effectively expands its loan book south of the border.
Second, BMO is well capitalized and offers shareholders an attractive dividend yield. One way regulators stress test banks for safety is by determining regulatory capital requirements. For instance, regulators consider the common equity tier-one (CET1) capital ratio, which measures a bank’s core capital as a percentage of its risk-weighted assets, including loans.
A lower CET1 suggests the bank has access to additional capital, which can be used to pay for dividends and share buybacks. But a higher ratio indicates a bank is well capitalized to tide over an economic downturn. BMO ended fiscal third quarter (Q3) of 2023 with a CET1 ratio of 12.3%, which is higher than most banks in the U.S.
Priced at 9.6 times forward earnings, BMO stock is quite cheap and trades at a discount of 12% to consensus price target estimates.
Brookfield Infrastructure Partners stock
Despite a sluggish macro environment, Brookfield Infrastructure (TSX:BIP.UN) has grown its funds from operations, or FFO, by 10% year over year in Q2 of 2023, showcasing the resiliency of its business model.
BIP operates in several capital-intensive industries, such as energy, transportation, and data infrastructure, allowing it to generate stable cash flows across market cycles and support its high dividend yield of 4.8%.
In Q2, BIP benefitted from organic growth drivers, as its inflation-linked contracts and $1 billion in new project completions as well as $2.1 billion deployed in acquisitions, drove earnings higher.
BIP is on track to generate an FFO of $3 per share in 2023, valuing the stock at less than 11 times forward earnings, which is quite low. Comparatively, the S&P 500 index trades at 20 times forward earnings.
The growth story for Brookfield Infrastructure is far from over. For instance, it’s in the process of acquiring two large data centre platforms and one of the biggest container-leasing companies. It has also partnered with semiconductor giant Intel to manufacture two new facilities in 2024. Intel has disclosed it aims to accelerate the construction of these facilities as it recently received a large customer order.
BIP aims to grow dividends between 5% and 9% annually in the medium term, increasing your effective yield significantly. The TSX stock also trades at a discount of 45% to consensus price target estimates.
