Those looking to take advantage of income investing often look for stocks with strong but stable dividends. This strategy is particularly important in the current economic climate, as dividend cuts have multiplied.
On the TSX, there are many blue-chip stocks that trade at deflated prices and therefore offer high returns. It’s important for investors to consider whether these are sustainable dividends or just too good to be true.
To generate solid passive income in the future, a stock needs to be prepared to weather the storm in the short term while still delivering value with its dividend. Today we’ll take a look at two of those TSX stocks that are top candidates for income investing.
Royal Bank of Canada (TSX: RY) (NYSE: RY) is Canada’s largest bank by market capitalization and a household name in Canadian banking services. This stock still offers great value to investors through both the growth in the share price and the consistency of its dividend.
With the recent vaccine rally, this TSX heavyweight has essentially returned to trading at the prices it started the year at. In fact, it is trading at $ 103.44 at the time of writing and at $ 103.55 on January 2, 2020.
RY was able to weather the storm as it is a well capitalized stock with lots of liquidity and stability support. This is a stock that has proven time and time again that it will pay dividends to investors, which is great for income investing.
In fact, RY has paid a dividend every year since 1870 to its investors. So even with the unique array of challenges presented today, investors can rely on RY’s strong track record for further confidence.
That aside, the stock’s payout ratio of just 54.76% indicates that the dividend is not in danger at all. As of this writing, RY is offering investors a return of 4.19%.
While it’s not the juiciest yield on the market, being tied to this banking giant helps make it a more attractive proposition for passive investors.
Fortis (TSX: FTS) (NYSE: FTS) is a large electric utility company with international operations in addition to its Canadian presence. He has long been a favorite among defensive-minded TSX investors looking to hedge against the market.
This TSX giant certainly delivers on this front, as it sports a beta of 0.08. While this number may not always be perfect, it gives us a strong indication that FTS is not following market movements closely.
This income investing star is defensive action because of her income streams. It operates largely on regulated contracts and, as such, has predictable income. It also means that it does not experience large fluctuations in demand.
At the time of this writing, it gives 3.8%. So this protection against market forces has a small cost in terms of performance. However, income investors looking for protection against the market crash might be drawn to this action.
Income investment plan
Both of these top heavyweights can deliver value in an income investing strategy. They both offer rock solid dividends to investors with unmistakable stability.
While there are currently larger returns, they usually come with a lot of question marks. With RY and FTS, you pretty much know what you’re getting, even during times like these.
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Silly contributor Jared Seguin has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.