Starting a passive-income stream with practically any dividend stock is possible, but building a steady and reliable stream might require you to pick your dividend stocks more judiciously. You have to look into dividend sustainability so your passive-income stream doesn’t suddenly shrink if the company suspends or slashes its dividends.
If you also want to create an inflation-resistant passive income, it’s a good idea to stick to Dividend Aristocrats that keep raising their payouts (usually every year).
The natural place to stash these well-oiled dividend machines is the Tax-Free Savings Account (TFSA), where you can access the dividend income generated by a stock (tax-free).
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A utility stock
Utility stocks are arguably among the safest dividend payers in the market, and Canadian Utilities (TSX:CU) takes this safety endorsement to a whole new level with its dividend history. It’s the only Dividend King in Canada and has grown its payouts for an impressive 51 consecutive years. With this business model and history, it’s arguably the safest dividend stock in Canada.
It’s also a decent pick right now, with its 5.5% dividend yield and a fair valuation. The stock is also climbing upward, but considering the condition of the market/TSX as a whole, a long-term bullish trend seems unlikely. Its fundamental strengths are still relevant, and you can choose to buy it now or wait until it’s discounted under the influence of a market crash.
A mortgage company
There are only a few publicly-traded, non-bank mortgage lenders in Canada, and First National Financial (TSX:FN) is at the head of this small pack. It’s one of the country’s largest non-bank mortgage lenders and caters to residential and commercial clients, offering flexible mortgages and other financing solutions.
However, the company shares multiple dividend-related traits with Canadian banks. It usually offers a generous dividend yield (6.7% right now), has a stable payout ratio history, and is also a well-established Aristocrat that raised its payouts for 11 consecutive years. It’s also slightly undervalued right now, increasing its attraction for value investors.
A telecom company
BCE (TSX:BCE), the largest telecom company in Canada (by market cap) and one of the most prominent 5G stocks in the country, is also one of the most brutally discounted Aristocrats trading on the TSX right now. It has lost about a third of its market value (34%) from its five-year peak, and this discount has pushed its yield up to a juicy 8.3%.
The company went through a challenging phase earlier this year, cutting thousands of jobs and pursuing significant restructuring. Negative regulatory variables both triggered and aggravated the condition. But BCE is turning things around. The stock climbed over 10% in the last 30 days alone, and if it continues at this pace, the yield might fall below 8%.
Foolish takeaway
The three dividend stocks are perfect for starting a long-term passive income. They offer generous yields, have solid dividend histories, and have stable payout ratios, endorsing their sustainability. Thanks to their yearly payout growth, a passive income from these stocks might even manage to keep pace with inflation.
