In an era in which building wealth requires more than just a steady job, Canadians are increasingly turning to passive income streams. One of the most effective ways to achieve this is by investing in income stocks. These are reliable shares that pay decent dividends or cash distributions.
Not only do these investments provide immediate cash flow, but they also offer the potential for long-term price appreciation. Here, we explore two exceptional income stocks that are promising opportunities for Canadian investors looking to build wealth over the next decade.
Bank of Montreal: A legacy of stability and growth
Bank of Montreal (TSX:BMO) has core operations spanning both Canada and the United States. Approximately 60% of its revenue comes from Canada, while around 30% is generated from its U.S. operations. Although its U.S. segment has recently faced challenges, particularly with high credit losses impacting its fiscal third-quarter results, given time, the bank's resilient core business and strong financial position can allow it to turn around.
Over the last two weeks, the big Canadian bank stock has shown signs of renewed momentum, transitioning from a period of stagnation. Historically, the bank has been a reliable dividend payer, with a record dating back to 1829. Currently priced at around $122 per share, BMO offers an enticing dividend yield of approximately 5.1%. This dividend is sustainable, estimated at about 60% of its adjusted earnings this year.
Over the past decade, BMO stock has delivered annualized total returns of about 8.1%. With its current valuation appearing reasonable, the stock could potentially achieve a compound annual growth rate (CAGR) of around 12% over the next few years. This blend of reliable dividends and potential price gains makes BMO a cornerstone investment for those looking to create long-term wealth.
Brookfield Infrastructure Partners: A gateway to diverse income streams
Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) represents a unique investment opportunity for Canadians seeking both income and growth over the long haul. This company operates in an impressive range of sectors, including utilities, transport, midstream energy, and data infrastructure. By owning and managing high-quality infrastructure assets globally, Brookfield Infrastructure provides a diversified income stream that can weather economic fluctuations.
The company's portfolio features regulated transmission utilities, rail networks, toll roads, and energy storage facilities, all of which contribute to a stable revenue base. Operating in over 15 countries allows Brookfield Infrastructure ample room for expansion and acquisition opportunities. Its management team has a strong history of employing value investing strategies – acquiring quality assets at favourable valuations and enhancing their operations for optimal performance.
What sets Brookfield Infrastructure apart is its resilient cash flow structure, with around 90% of its revenues coming from regulated or contracted sources. Its contracted cash flows have a long weighted average duration of about 10 years, ensuring that investors can count on consistent income.
The top utility stock has a commendable track record of increasing its cash distribution for 15 consecutive years, with a five-year cash distribution growth rate of 6.3%. Looking ahead, the company aims for sustainable annual distribution growth of 5–9%. With a current yield of approximately 4.8%, Brookfield Infrastructure is an attractive option for income-focused investors.
The Foolish investor takeaway
Both Bank of Montreal and Brookfield Infrastructure Partners present excellent opportunities for Canadians seeking to build wealth through reliable income stocks. With their solid track records, sustainable dividends, and potential for price appreciation, these stocks can serve as integral components of a long-term investment strategy.
