There is a straightforward rule for creating an inflation-resistant passive income with stocks — i.e., sticking to Dividend Aristocrats.
The stocks with years of consecutive dividend growth on their track record and the financial stability to continue this practice can help you create a passive-income stream that gets an “upgrade” every year. So, as your expenses grow, your passive stream will also grow to bridge the gap.
The choice of account is not a matter of debate here. A Tax-Free Savings Account (TFSA) is the natural choice since it allows you to cash out the dividends. The best part is that such a passive income is also not a burden on your tax bill. The last part of the puzzle is choosing the right Dividend Aristocrats.
An energy giant
The energy sector in Canada has multiple aristocrats, but a giant like Enbridge (TSX:ENB) offers multiple layers of safety to its investors.
Not only is it the largest publicly traded energy company in Canada (by market cap), but its pipeline and a massive natural gas utility business in the U.S. and Canada make its revenues highly stable. This is an important factor to consider in long-term dividend growth sustainability.
It also has one of the most impressive dividend growth track records among Aristocrats, not just in the energy sector but also in the market at 29 years of consecutive growth.
The company has set a conservative outlook for its dividend growth, shifting from the past incredibly generous dividend boosts. It’s trading sustainability for the scale of dividend growth. This minor “limitation” can be offset by leveraging the current mouth-watering 6.7% yield.
A banking giant
Toronto-Dominion (TSX:TD) is the second-largest bank in Canada by market cap and the top bank in multiple categories. It also has a solid presence in the U.S., which is usually a strength but is currently a problem for the bank. It is the target of a U.S. probe into its anti-money laundering practices. This probe is one of the reasons the bank is not following the bullish trends like its peers in the banking sector.
However, the bank has also shown incredible resilience despite its regulatory challenges and slumped relatively minor, which increased its dividend yield to a relatively higher level of 5.1%. The bank shares the financial stability characteristic of Canadian banks, making it a solid pick for creating an inflation-resistant passive income.
A telecom giant
Telus (TSX:T) is another second-place giant on this list but in an even more consolidated market. Just three giants dominate telecom in Canada, so Telus has quite a hefty slice of the total pie. It’s also one of the top 5G stocks in Canada.
The entire telecom sector suffered from some regulatory challenges a while back, pushing them down quite a bit and raising their yields as a result. Telus lost about 35% of its market value, and the yield beefed up considerably (7% at the time of writing this).
Compared to other telecom giants in Canada, Telus is usually a relatively decent grower, so once it starts recovering, you are likely to benefit from more than just its dividends.
Foolish takeaway
The three Dividend Aristocrats can help you start a passive income from your TFSA that might remain ahead of inflation, even if the growth is relatively conservative. They are also giants in their respective industries with solid fundamentals, making them more resilient against weak markets than their smaller peers. This further augments the strength of your passive income.
