These days it is hard to earn retirement income from investments in the money markets. With interest rates near record lows, investors looking for supplementary income have to turn to equities. But where do retirees find decent distributions without taking on too much capital risk?
There is no such thing as a risk-free equity portfolio. However, I think income seekers should consider Agrium Inc. (TSX: AGU)(NYSE: AGU), BCE Inc. (TSX: BCE)(NYSE: BCE), and The Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) for a diversified income portfolio that offers low risk and reliable returns.
Let’s look at why these three companies are good picks right now.
Agrium Inc.
Agrium offers income investors a diversified option to capitalize on the growing global demand for crop nutrients. Agrium’s wholesale division produces and sells potash, nitrogen, and phosphate. The company’s retail division provides farmers in North America and Australia with fertilizers, seed, and a host of other core products required to ensure strong crop yields.
There are two reasons to buy Agrium right now.
Agrium’s dominant and growing position in the retail market means the retail side of the business is contributing substantially more revenue than in the past. This offsets the risks faced by the wholesale side of the business and the market should start to reward Agrium with a higher price-to-earnings ratio given the stability in the earnings.
Agrium is also reaching the end of a multi-year capital expansion at its Vanscoy potash mine. As the project moves from development to production, Agrium will have substantially more free cash flow available for shareholders.
Agrium currently pays a US$3.00 per share dividend that yields about 3.3%. The company has significantly increased the payout in the past three years and investors should see consistent dividend increases moving forward.
BCE Inc.
Canada’s largest communications company has a wonderful mix of communication and media assets that are unmatched in the industry.
Income investors rely on BCE for its generous dividend and stable stock price in uncertain markets. BCE is a good choice for the portfolio because the company’s last two acquisitions are great news for shareholders hoping to receive higher distributions.
The 2013 purchase of Astral Media has significantly boosted cash flow at the company. More recently, BCE’s decision to take its Bell Aliant subsidiary public will add even more cash to the coffers as Bell Aliant’s juicy dividend will now be available for BCE Inc. shareholders.
BCE pays a dividend of $2.48 that yields 5.1%. Yearly increases should continue to support the stock and reward income investors for their loyalty.
The Bank of Nova Scotia
Canada’s third largest bank often sits in the shadows of its larger peers, but I think it is the safest bet right now in the banking sector.
The Bank of Nova Scotia is extremely well capitalized with a Basel III common equity Tier 1 capital (CET1) ratio of 10.9%. This is important given some of the concerns about the Canadian housing market.
The company also has a diverse income stream with a large component of its revenue coming from its growing operations in Latin America. I recently wrote about the ways a new trade agreement between Mexico, Peru, Colombia, and Chile should significantly benefit The Bank of Nova Scotia as it has strong operations in all four countries.
The bank only trades at 11.8 times earnings, the lowest among the big five banks. The dividend of $2.64 per share yields a respectable 3.8%. For reliable dividend income, The Bank of Nova Scotia is tough to beat. The company has paid a distribution every year since 1883.
