5 Canadian Dividend Stocks to Buy for Passive Income

The Canadian stock market offers a wealth of opportunities for investors looking to generate passive income through dividend stocks. The recent pullback in the share prices of some of Canada's largest companies and best dividend payers has created an excellent opportunity for investors to buy top TSX dividend stocks at discounted prices for their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios. In this article, we will explore three Canadian dividend stocks that you should consider for your passive income portfolio. We will discuss TD Bank, TC Energy, and also touch on some other sectors to diversify your passive income investments. Remember to learn more about Canadian stock market hours and more beginner info before placing your first trade.

TD Bank (TSX:TD)

TD Bank is a financial giant in Canada with a current market capitalization of nearly $138 billion. At the time of writing, the stock is trading close to $76 per share, which is the lowest it has been since early 2021. This presents a significant opportunity for investors who missed the rally following the 2020 market crash.

One key event that impacted TD's share price was the cancellation of its planned US$13.4 billion takeover of First Horizon, citing regulatory hurdles. While this decision affected TD's earnings growth guidance, the bank now holds excess capital, ensuring it can navigate market turbulence effectively. TD offers a dividend yield of 5%, making it an attractive choice for those seeking passive income.

TC Energy (TSX:TRP)

TC Energy, a major player in the energy sector, currently trades at less than $47 per share, significantly lower than its 2022 high of around $74. The decline in the stock price can be attributed to rising interest rates, which impact the company's cost of borrowing as it uses debt for its growth plans. TC Energy is currently working to spin off its oil pipelines business to raise additional funds.

Despite the challenges, TC Energy still expects its capital program to generate sufficient revenue and cash flow growth to support annual dividend increases of 3% to 5%. The company has a history of increasing its dividend payouts for over two decades, and investors can now enjoy a high dividend yield of 7.9% by investing during this pullback.

Diversify Your Portfolio

While TD Bank and TC Energy are excellent choices for generating passive income through dividends, it's crucial to diversify your portfolio across different sectors for long-term stability and growth. Here are a few sectors and stocks to consider:

Utilities - Fortis (TSX:FTS)

Fortis is a top choice for a passive-income portfolio in the utilities sector. The company is on track to become a Dividend King with 50 years of consecutive dividend increases. With a solid strategy and a current dividend yield of 4.33%, Fortis provides stable returns, even in economic downturns.

Infrastructure - Aecon (TSX:ARE)

Aecon is another strong option for a passive-income portfolio in the infrastructure sector. Despite some recent challenges, the company has a substantial backlog of projects, offering long-term success. With a dividend yield of 7.02%, investors can expect stable income even as the company navigates its growth plans.

Essential Software - Constellation Software (TSX:CSU)

Essential software is a vital part of our daily lives, and Constellation Software is a company that has shown consistent growth over the decades. While it doesn't have a high dividend yield at 0.20%, it offers robust returns, with shares up 41% in the last year.

Conclusion

Building a passive-income portfolio in the Canadian stock market requires a strategic approach. TD Bank and TC Energy are prime examples of dividend stocks that offer attractive distributions set to grow over time. However, diversifying your portfolio with stocks from sectors like utilities, infrastructure, and essential software can provide additional stability and income. By investing in these carefully selected dividend stocks, you can create a solid foundation for your passive-income portfolio that will provide you with financial security for years to come.