Most dividend investors face the challenge of balancing risk and reward when choosing dividend stocks. High yields may carry the risk of financial instability, so investors must carefully consider their dividend needs and growth goals.
For investors seeking modest dividend income, a proportional allocation of capital between dividend stocks and growth stocks is sufficient. However, those with specific financial goals, such as a five-figure passive income, may need to allocate a significant amount of capital to the right dividend stocks.
The Canadian banking sector offers exceptional dividend stocks, with Canadian Imperial Bank of Commerce (TSX:CM) being one of the top choices. Currently trading at a 30% discount, the stock provides an attractive yield of 6.1%. With a healthy payout ratio and solid finances, this Aristocrat will continue to grow its dividends, allowing for continuous passive income growth.
In the energy sector, pipeline stocks like TC Energy (TSX:TRP) offer stability despite fluctuating oil prices. With a business model focused on natural gas, which is cleaner and less vulnerable to renewable energy disruptions than oil, TC Energy is a strong long-term growth prospect. Currently, trading at a heavily discounted price, the stock boasts a yield of 7.7%.
Atrium Mortgage Investment (TSX:AI) is a different type of dividend stock, but it presents three compelling reasons to consider it for building a solid passive income. Despite not being an Aristocrat or a large-cap giant, Atrium Mortgage Investment has an attractive valuation with a low price-to-earnings ratio of 9.8. It also offers financially sustainable dividends with a healthy payout ratio, along with a juicy yield of 8.1%.
By allocating approximately $150,000 of savings or capital into these three dividend stocks, investors can establish a passive income stream of about $10,950 per year. This translates to a decent monthly income of around $900, which can cover major or multiple regular expenses.
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