Investing in dividend stocks is one of the smartest ways to build a passive-income stream. Think of it as planting a tree that doesn't just grow in value over time but also bears fruit regularly. Dividends that land directly in your account. This strategy is particularly appealing to those aiming to achieve financial independence, supplement their income, or simply let their money work for them. Unlike other forms of investing that rely on selling assets for profit, dividend stocks allow you to keep your shares and still benefit from the company's success.

Why dividend stocks

Dividend-paying companies are often well-established and financially stable businesses. These companies prioritize returning value to their shareholders, making them a safer option for those wary of volatile market swings. Unlike growth stocks, which may reinvest profits into expansion and pay little or no dividends, dividend stocks reward you consistently for your investment. This reliability is especially comforting during turbulent times in the market when stock prices may dip, but dividends keep flowing.

Another powerful aspect of dividend stocks is the opportunity for compounding. By reinvesting your dividend payouts back into purchasing additional shares, you allow your portfolio to grow faster. Over time, this snowball effect can lead to exponential growth in both your share count and the income you receive.

Consider DIV

Let's narrow in on Diversified Royalty (TSX:DIV), a standout in the dividend stock universe. DIV is a unique company operating as a multi-royalty corporation. This means it earns income by acquiring royalties from well-managed businesses and franchisors across North America. These royalties provide steady cash flow, and because DIV's income comes from multiple industries, the company has built-in diversification. This mitigates risk and ensures the company isn't overly reliant on a single sector or revenue stream.

As of writing, DIV's stock trades at $3.02, offering a forward annual dividend rate of $0.25 per share. This translates to a dividend yield of 8.28%, which is significantly higher than the yields offered by many other dividend stocks. High yields like this make DIV an excellent choice for income-focused investors looking to maximize their returns.

Recent earnings demonstrate DIV's consistent ability to deliver value to its shareholders. In the most recent quarter, the dividend stock reported revenue of $16.78 million, reflecting strong year-over-year growth of 18.3%. Earnings per share (EPS) came in at $0.05, meeting expectations and showcasing the company's ability to maintain stable profitability.

Looking ahead

DIV's financial metrics further illustrate its strong footing. The dividend stock's operating margin of 90.10% is exceptionally robust. Thus signalling efficient operations and significant profit generation relative to revenue. Meanwhile, its profit margin stands at 49.26%, indicating that almost half of its revenue translates into actual profit. These metrics underscore the company's ability to continue funding its generous dividend payouts.

Looking forward, DIV's strategy is all about growth. The dividend stock is focused on acquiring additional royalty streams, which will diversify and expand its cash flow even further. This proactive approach not only enhances the stability of its income but also creates opportunities for future dividend increases. For investors, this means the potential for both growing passive income and share price appreciation.

Another appealing feature of DIV is its history of rewarding shareholders. Over the past five years, its average dividend yield has been 8.54%, illustrating a strong commitment to maintaining a high yield. This reliability is key for investors who depend on dividend income, whether for retirement or as a supplement to other earnings.

Bottom line

For those looking to build a robust passive-income portfolio, Diversified Royalty checks all the right boxes. Its diversified revenue streams, high and reliable dividend yield, and strong financial metrics make it a compelling option for long-term investors. Whether you're reinvesting dividends to grow your portfolio or living off the income, DIV offers stability and growth potential in one neat package. With its forward-looking strategy and consistent track record, it's no wonder this stock has become a favourite for Canadian dividend investors.