A Passive-Income Powerhouse: Have it All With This AI Stock

OpenText (TSX:OTEX) has a long history of growth and innovation through its cloud, data, and AI strategy. And it also has dividends!

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published September 16, 2024 8:15 pm EDT

| More on: OTEX

If there’s one thing that many investors forget, it’s that passive income isn’t just about dividends. There are plenty of other ways to generate it, like investing in rental properties, bonds, or even peer-to-peer lending. However, the key thing to remember is that focusing solely on passive income can sometimes mean sacrificing higher returns from growth investments.

Stocks with high growth potential, for instance, often reinvest their profits into expanding the business rather than paying out dividends. So, while passive income is great for cash flow, keep in mind that you might be giving up the opportunity for larger gains in the long run. Which is exactly why today we’re considering passive income from artificial intelligence (AI) stocks.

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor. — Source: Getty Images

Some strategies

Passive income can be one of the most powerful ways to grow wealth, especially when paired with strong returns. For instance, consider dividend stocks, whereby companies regularly pay shareholders a portion of their profits. If you invest $10,000 in a stock with a 4% dividend yield, you’d receive $400 annually just for holding the stock. Over time, if the company increases its dividend (as many blue-chip stocks do), your passive income grows without you having to lift a finger. Plus, reinvesting those dividends can compound your earnings even further, leading to substantial gains over the long haul.

Beyond dividends, returns from other passive income strategies like rental properties can also generate impressive results. According to a 2022 study, real estate investors typically see an average annual return of around 8-12%. If you own a property that nets $12,000 in rental income each year, and the value of the property appreciates at even 3% annually, you’re building passive wealth – both through income and asset growth. When done right, passive income through strong returns can give you financial freedom with less effort. All while continuing to grow your investment portfolio.

Get into AI

AI stocks on the TSX could be a fantastic option for investors looking to tap into long-term passive income and innovation. With AI transforming industries from healthcare to finance, investing in AI stocks positions you at the forefront of technological advancement. Companies in this space are not just about tech. They’re driving efficiency, improving customer experiences, and opening up new revenue streams across various sectors. Plus, the global AI market is expected to reach nearly $2 trillion by 2030. This shows just how much potential there is for growth.

On the TSX, AI-related stocks offer an opportunity to be part of this booming trend with the added advantage of supporting Canadian innovation. These stocks give investors exposure to this exciting field while benefiting from a stable and regulated market. With AI continuing to grow exponentially, these stocks could see impressive returns as more industries adopt AI-driven solutions, making them a solid option for both growth and future-proofing your portfolio.

Consider OpenText

OpenText (TSX:OTEX) on the TSX could be a great investment option due to its consistent positive momentum and strong financial performance. The company recently reported total revenues of $5.8 billion for fiscal 2024, marking a 28.6% year-over-year increase. With 79% of its revenue being recurring, OpenText has built a stable foundation with its cloud services and AI-driven solutions, thereby positioning itself as a key player in the information management sector. Investors can also look forward to OpenText’s strategic capital allocation. This includes a new $300 million share repurchase program and a 5% dividend increase, reflecting confidence in its long-term growth.

In addition to its solid financials, OpenText’s management team, led by CEO Mark J. Barrenechea, has demonstrated strong leadership and execution. Under their guidance, the company completed the divestiture of its AMC business for $2.3 billion. And this has significantly improved capital flexibility. The management’s focus on growth, profitability, and innovative solutions like cloud and AI ensures that OpenText remains competitive in the evolving tech landscape, making it a strong choice for investors seeking long-term value.

Bottom line

Dividend stocks are great. But don’t let that hide you from the fact that passive income includes returns as well. Yet with OpenText, you get it all – a dividend yield at 3.3% at writing, high long-term returns, and a storied history of strong growth.