Choosing the right stock can be challenging when your goal is to develop a passive income that will last for decades and continue to augment your primary income or retirement income virtually forever. You have to consider several factors, including the stock’s history and future prospects.
If you have adequate risk tolerance, you can go for the highest-yield ones, but if you want to play it safe, stick to time-tested aristocratic giants. But getting the best of both worlds is possible with the right stocks.
One relatively easy decision is regarding the right tax-sheltered account in which to stash those dividend stocks. The Tax-Free Savings Account (TFSA) is a natural choice since it allows you to access the dividend income that’s being produced in it.
A telecom giant
BCE (TSX:BCE) is the largest telecom giant in Canada by market capitalization and, as per a few other metrics, the most generous dividend payer among the three telecom giants in the country.
It’s offering a juicy yield of about 8.6% right now, so even if you allocate just $20,000 to this stock right now, you can expect a monthly income of about $143. The payout ratio is well above 100% and has remained so for a few years now, but it has yet to cause the company to slash its payouts.
BCE also has a solid dividend history and has grown its payouts for 14 consecutive years. This endorses its position as a “forever dividend stock,” but it’s not the only thing. While BCE is heavily discounted right now (hence the high yield), it and other telecom companies might experience a new growth phase as the Internet of Things (IoT) grows.
While most telecom companies in Canada reached their saturation point regarding new subscribers, IoT might create millions of new “users” relying upon BCE and other telecom companies and their 5G networks.
An energy giant
Enbridge (TSX:ENB) is already an investor favourite regarding dividend stocks in the energy sector. The primary reason is its stellar dividend history — 29 years of consecutive dividend growth. However, the business model is another factor to consider, especially if you are evaluating the future prospects of this energy giant.
The pipeline business makes it safer than most upstream and downstream energy companies in Canada and makes it a healthy pick for dividends, even though it undercuts the growth potential. Utilities, another safe and timeless business segment, are another primary focus for Enbridge, as evidenced by the joint ventures it’s pursuing that focus on natural gas.
When we add the generous 7.5% yield and an attractive valuation to these strengths, Enbridge emerges as one of the most compelling dividend picks, not just among energy stocks but on the TSX.
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Foolish takeaway
Both companies have the track record to endorse their position as long-term dividend picks and a healthy vision for the future. They are either already capitalizing on the available opportunities or waiting for the right market conditions to grow adequately bullish. But when that happens, the yields might shrink to less attractive levels.
