It’s advisable for investors to create multiple passive-income streams, as the strategy helps you build long-term wealth and accelerate your retirement plans. However, you need to have enough capital to generate a significant yield in most cases.
For example, the average home price in Canada in August 2023 stood at $650,140. It suggests most homeowners will fund the purchase with a small down payment and a significant portion of debt. Moreover, even after buying a house, you still need to hunt for tenants and allocate funds towards maintenance as well as taxes.
Alternatively, a low-cost way to generate passive income is by investing in blue-chip dividend stocks such as Canadian Utilities (TSX:CU) and Emera (TSX:EMA). Let’s see how.
Canadian Utilities stock
With $22 billion in assets, Canadian Utilities is a diversified energy infrastructure entity. It currently pays shareholders an annual dividend of $1.79 per share, indicating a forward yield of 6.2%. These payouts have risen for 51 consecutive years, which is the longest streak for any company on the TSX.
Canadian Utilities aims to grow dividends in line with earnings, which is linked to growth from its regulated and contracted agreements. Between 2023 and 2025, Canadian Utilities expects to invest $4.1 billion in capital growth projects, which should drive future cash flows higher.
Priced at 13 times 2023 earnings, CU stock is quite cheap, given its tasty dividend yield. The TSX stock currently trades at a discount of 30% to consensus price target estimates.
Emera stock
Another Canada-based utility company, Emera, currently offers shareholders a dividend yield of 5.8%. These payouts have risen at an annual rate of 6% in the last two decades. Despite an inflationary macro environment, Emera increased its adjusted earnings by 5% year over year in the first six months of 2023.
With $38 billion in assets, Emera ended 2022 with $7.5 billion in revenue. It invests in regulated electricity generation and electricity and gas transmission & distribution. Emera has a presence in Canada, the U.S., and three Caribbean countries.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Canadian Utilities | $28.60 | 1,748 | $0.4475 | $782.2 | Quarterly |
| Emera | $45.87 | 1,090 | $0.69 | $752 | Quarterly |
Emera emphasized earnings from its regulated utilities rose 8% in the second quarter (Q2) due to rate-supported capital investments and customer growth, which was offset by higher interest rate expenses.
The company is on track to deploy $2.8 billion in capital this year, and these expenditures will be a key driver for its cash flows in the near term. Priced at 15 times forward earnings, Emera stock is forecast to grow earnings by 6% annually between 2024 and 2028.
Analysts remain bullish on Emera stock and expect shares to gain 25% in the next 12 months.
The Foolish takeaway
The dividend income you earn basically depends on the dividend yield. At an average yield of 5%, you would need to invest a total of $120,000 to earn $500 per month in dividends. Given the average yield of Canadian Utilities and Emera, you would have to invest a total of $100,000 distributed equally in these two TSX stocks.
But it does make financial sense to allocate such a huge sum of capital to just two companies. Investors need to identify similar fundamentally strong companies and create a diversified portfolio of dividend stocks.
