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Investing in high-dividend stocks can provide a reliable source of passive income. However, to maximize the growth of your passive income over time, it's critical to focus on dividend-generating companies. These are companies with strong fundamentals and a growing earnings base that allows them to consistently increase their dividends and improve shareholder value.
A growing stream of dividend income reduces the payback period on your investment and allows for reinvestment, improving your returns over time.
With that background, here are two great Canadian stocks to buy on the cheap for a growing stream of dividend income.
Canadian Natural Resources
Speaking of rising dividends, investors might consider buying Canadian Natural Resources(TSX:CNQ) stock. This leading producer of crude oil and natural gas is known for its high dividend growth rate and commitment to returning increasing amounts of cash to its shareholders.
Canadian Natural Resources has an impressive track record of dividend increases. For example, 2024 marks the company’s 24th consecutive year of dividend growth. During this period, this energy company’s dividend grew at a compound annual growth rate (CAGR) of 21%. Its higher dividend growth rate and strong payouts reflect its strong financial position and management’s confidence in the sustainability of its business model.
The company has a balanced and diversified portfolio of assets spanning different types of crude oil (from light to heavy) and natural gas. This diversity not only mitigates risk, but also optimizes capital investments, thereby maximizing shareholder value.
In addition, Canadian Natural Resources benefits from the resilience of its long-life, low-decline rate producing assets. These assets, combined with efficient operations and low reserve replacement costs, enable the company to generate strong adjusted cash flow throughout commodity price cycles. This stability underscores its ability to withstand market fluctuations while simultaneously increasing shareholder returns.
Canadian Natural Resources also maintains a substantial inventory of low capital exposure projects within its conventional asset base. These projects are designed for rapid execution and offer attractive returns, reinforcing growth prospects. In addition, Canadian Natural Resources benefits from a vast undeveloped land base, facilitating extensive and repeatable drilling programs that improve operational efficiency and support long-term growth initiatives.
In summary, Canadian Natural Resources' focus on long-lived assets, efficient capital allocation, and a diversified production portfolio position it favorably for sustained earnings growth and solid dividend payments. It offers a quarterly dividend of $0.525 per share, which translates to a 4.5% yield close to the current market price.
TC Energy
TC Energy (TSX:TRP) is an attractive stock for investors looking for a growing stream of passive income. This dividend-generating company owns an energy infrastructure company with a strong track record of returning substantial cash to its shareholders through higher dividend payments.
TC Energy has increased its dividend for 24 consecutive years. Over the same period, its dividend grew at a compound annual growth rate (CAGR) of 7%.
TC Energy benefits from high asset utilization. In addition, it generates the majority of its earnings through assets subject to regulated tariffs and long-term contracts. These attributes bring stability to its business and allow it to consistently increase its earnings and dividend payments.
The company is focused on optimizing its portfolio and will spin off the liquids business to maximize shareholder value. In addition, the company plans to invest approximately $7 billion in new assets through 2024, which will further strengthen its financial performance.
Overall, TC Energy’s diversified asset base and utility-like revenue model, combined with strong demand for its services and investments in low-carbon energy solutions, position it favorably for sustained earnings growth. These factors will enable it to increase shareholder returns through increased dividend payments. It pays a quarterly dividend of $0.96 per share, generating a yield of over 6% near the current market price. In addition, TC Energy is targeting annual dividend growth of 3% to 5%, reinforcing its commitment to improving shareholder returns over time.